THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


SELECTED    CASES 


ON   THE 


LAW    OF 

SURETYSHIP 


AND 


GUARANTY 


BY 

HENRY    H.    WILSON 

PROFESSOR    OF    LAW    IN   THE    UNIVERSITY    OF   NEBRASKA 


CHICAGO 

CALLAGHAN    &    COMPANY 
1907 


COPYRIGHT,  1907 

BY 
CALLAGHAN  &  COMPANY. 


PREFACE 


The  selection  of  the  following  cases  on  Suretyship  and  Guar- 
anty is  largely  the  result  of  the  author's  many  years  experience  as 
a  law  school  teacher.  It  has  been  thought  best  to  confine  the 
cases  to  those  illustrating  the  general  principles  of  the  subject, 
rather  than  run  the  risk  of  confusion  by  entering  too  largely  into 
detail  or  devoting  too  much  space  to  exceptional  cases. 

The  general  doctrines  of  a  subject  are  all  that  the  student 
should  be  expected  to  master  and  he  will  do  this  the  better  by 
not  attempting  too  much  detail.  Generally  recent  cases  have 
been  selected  as  more  accurately  reflecting  the  present  state  of 
the  law.  The  object  has  been  to  present  the  American  Law  of 
Suretyship  and  Guaranty  as  it  is  now  administered  by  our  courts. 

The  very  recent  development  of  the  business  of  indemnifying 
employers  of  labor,  and  guaranteeing  credits  and  titles  seemed  to 
justify  including  those  subjects  here,  although  they  might,  with 
equal  propriety,  be  treated  under  the  title  of  insurance. 

The  hope  of  lessening  the  labors  of  those  who  teach,  as  well 
as  those  who  study,  a  subject  of  growing  importance  in  the  courts 
and  schools,  furnished  the  motive  for  this  volume. 

HENRY  H.  WILSON. 
LINCOLN,  NEBRASKA,  September  5,  1907. 


671  .n«9 


CONTENTS 


CHAPTEB  I. 

NATURE  OP  CONTRACT. 

a.  Contracts  of  Suretyship  and  Guaranty  are  agreements  to 

answer  for  the  debt,  default  or  miscarriage  of  another      1 

b.  Contract  of  Suretyship  creates  an  immediate  and  direct 

liability  6 

c.  Contract  of  Guaranty  is  independent,  yet  collateral  to, 

that  of  the  principal 24 

CHAPTER  II. 

CONSTRUCTION  OF  CONTRACT. 

a.  In  ascertaining  meaning  of  contract  ordinary  rules  of 

construction  are  applied 27 

b.  Liability  not  to  be  extended  beyond  strict  terms  of  con- 

tract        38 

CHAPTER  III. 
PARTIES  TO  CONTRACT. 

a.  Married  women  as  sureties  or  guarantors 77 

b.  Corporations  as  sureties  or  guarantors 94 

c.  Infants  as  sureties Ill 

CHAPTER  IV. 

EXECUTION  OP  CONTRACT. 

a.  Principal  in  procuring  signatures  of  sureties  is  their 

agent    ; 117 

b.  Name  of  co-surety  forged 129 

c.  Surety  bound  though  principal  is  a  married  woman,  an 

infant  or  an  insane  person 132 

v 


vi  CONTENTS. 

CHAPTER  V. 

ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

a.  'Absolute  guaranty  requires  no  notice  of  acceptance 140 

b.  A  proposition  to  guarantee  requires  notice  of  acceptance  172 

CHAPTER  VI. 
CHANGE  OF  CONTRACT. 

a.  Any  material  change  of  contract  between  debtor  and 

creditor  will  release  surety 212 

b.  Any  valid  extension  of  time  of  payment  will  release 

surety 222 

c.  An  extension  procured  by  fraud  will  not  release  surety . .  233 

d.  Part  payment  of  a  due  debt  no  consideration  for  an  ex- 

tension      242 

e.  Relation  of  surety  to  the  debt  must  be  known  to  creditor  245 

f.  Property  of  one  pledged  for  debt  of  another  treated  as  a 

surety  251 

g.  Mere  delay  of  creditor  will  not  discharge  surety 264 

CHAPTER  VII. 

EFFECT  ON  CREDITOR  OF  AGREEMENT  BETWEEN  DEBTORS  AS  TO 
PRIMARY  LIABILITY. 

a.  Grantee  who  assumes  and  agrees  to  pay  incumbrance  be- 

comes principal  and  grantor  the  surety 283 

b.  It  is  held  in  some  states  that  debtors  cannot  by  agreement 

among  themselves  affect  situation  of  creditor 295 

C.  In  other  states  it  is  held  that  debtors  may  by  agreement 
affect  their  relation  to  the  debt  and  compel  their 
creditor  to  protect  rights  of  surety 308 

CHAPTER  VIII. 
EFFECT  OF  INDEMNITY. 

a.  A  surety  who  is  indemnified  against  loss  has  not  the  ordi- 
nary rights  of  a  surety 321 

,    CHAPTER  IX. 

RIGHTS  OF  SUCCESSIVE  SURETIES  FOR  SAME  DEBT. 
a.  Of  sureties  becoming  successively  liable  for  the  same  debt 
the  last  is  primarily  liable 332 


CONTENTS.  Vll 

CHAPTER  X. 
SUBROGATION  AND  CONTRIBUTION. 

a.  The  surety  upon  payment  of  debt  is  subrogated  to  rights 

of  creditor  and  may  sue  principal 344 

b.  All  securities  placed  in  hands  of  surety  inure  to  benefit  of 

creditor    349 

c.  Equity  will  apportion  burden  equally  among  solvent  co- 

sureties    352 

d.  Securities  held  by  one  surety  inure  to  benefit  of  all 357 

e.  After  obligation  has  been  discharged  by  co-sureties  pay- 

ing equal  amounts  one  may  receive  security  for  him- 
self alone 360 

f .  Surety  paying  whole  debt  will  be  allowed  to  file  his  claim 

for  entire  debt  against  estate  of  insolvent  co-surety 363 

CHAPTER  XI. 
GUARANTY  OF  PAYMENT  OR  COLLECTION. 

a.  A  guarantor  of  payment  is  immediately  and  absolutely 

liable  to  creditor 371 

b.  A  guarantor  of  collection  liable  only  when  principal  has 

been  exhausted 377 

CHAPTER  XII. 
STATUTE  OF  FRAUDS. 

a.  Contracts  of  suretyship  and  guaranty  are  within  the 
Statute  of  Frauds 387 

CHAPTER  XIII. 

EQUITY  WILL  COMPEL  PRINCIPAL  TO  PAY. 
a.  The  surety  may  in  equity  compel  the  principal  to  pay  the 

debt  on  which  the  former  is  only  secondarily  liable 402 

CHAPTER  XIV. 
EFFECT  OF  DEATH  OF  SURETY. 

a.  At  common  law  the  death  of  a  surety  discharged  his  estate 

from  liability 405 

b.  A  continuing  guaranty  is  revoked  by  the  death  of  the 

surety 406 

c.  Liability  on  bond  for  faithful  performance  is  not  termi- 

nated by  death  of  surety 421 


viii  CONTENTS. 

CHAPTER  XV. 

FIDELITY  BONDS. 

a.  Concealment  by  obligee  of  facts  material  to  risk 431 

b.  Any  material  change  of  duty  of  principal  discharges 

surety  445 

c.  Change  of  duty  imposed  by  statute  does  not  discharge 

surety  449 

d.  Sureties  are  entitled  to  reasonable  notice  of  principal's 

default 451 

e.  Continuing  principal  in  service  after  default  will  dis- 

charge sureties  453 

f.  The  principles  of  construction   applicable  to  Insurance 

policies  are  applied  to  Fidelity  bonds 466 

CHAPTER  XVI. 
NEGLIGENCE  OF  OFFICERS  OF  A  PUBLIC  OBLIGEE. 

a.  Sureties  are  not  discharged  by  the  negligence  of  public 

officers    487 

CHAPTER  XVII. 

DEFENSES  AVAILABLE  TO  SURETY. 

a.  Generally  any  defense  that  will  defeat  action  against 

principal  will  avail  surety 490 

CHAPTER  XVIII. 

EFFECT  OF  JUDGMENT  AGAINST  PRINCIPAL. 

a.  A  judgment  against  the  principal  not  conclusive  against 
surety  500 

CHAPTER  XIX. 

CONSTRUCTION  CONTRACTS. 

a.  Persons  for  whose  benefit  they  are  made  may  recover. ...  509 

b.  Fraud  of  principal  in  procuring  bond  will  not  affect 

rights  of  obligee 513 


CONTENTS.  ix 

CHAPTER  XX. 

EMPLOYERS'  LIABILITY  BONDS. 

a.  Employers'  Liability  Bonds  are  construed  as  Insurance 
policies  518 

CHAPTER  XXI. 
CREDIT  INDEMNITY  BONDS. 

a.  Credit  Indemnity  Bonds  are  in  the  nature  of  insurance 
policies  indemnifying  against  losses  arising  from  com- 
mercial credits  533 

CHAPTER  XXII. 

TITLE  INDEMNITY  BONDS. 

a.  Title  Indemnity  Bonds  are  in  the  nature  of  insurance 
policies  indemnifying  against  losses  arising  from  de- 
fective titles  to  real  estate <. 573 

CHAPTER  XXIII. 

RIGHTS  OF  CORPORATE  SURETIES. 

a.  Corporate  sureties  have  the  same  rights  under  the  law  as 

individual   sureties 611 

CHAPTER  XXIV. 

MEASURE  OF  DAMAGES. 

a.  The  measure  of  damages  in  guaranty  insurance  is  the 
actual  loss  arising  from  the  perils  insured  against,  up  to 
the  amount  of  the  policy 625 


TABLE  OF  CASES. 


[REFERENCES  ABE  TO  PAGES.] 

Allen  v.  Hopkins,  98  Ky.  668 264 

Allen  v.  Sharpe,  37  Ind.  67 233 

American  Surety  Co.  v.  Thurber,  162  N.  Y.  244 613 

Appeal  of  Freeman,  68  Conn.  533 88 

A.  S.  Ripley  Bldg.  Co.  v.  Coors,— Col.,— 84  Pac.  Rep.  817 513 

Auchanpaugh  v.  Schmidt,  70  Iowa  642 4 

Bank  of  Tarboro  v.  Fidelity  &  Deposit  Co.,  128  N.  C.  366 619 

Baldwin  v.  Hiers,  73  Ga.  739 393 

Barker  v.  Wheeler,  60  Neb.  470 505 

Barns  v.  Barrow,  61  N.  Y.  39 71 

Barton  v.  West  Jersey  Title  &  Guaranty  Co.,  64  N.  J.  L.  24 580 

Benson  v.  Phipps,  87  Texas  578 225 

Bernd  v.  Lynes,  71  Conn.  733 490 

Best  Brewing  Co.  v.  Klassen,  185  111.  37 107 

Brental  v.  Helms,  1  Root  (Conn.)  291 346 

Bullard  v.  Brown.  74  Vt.  120 344 

Calvo  v.  Davies,  73  N.  Y.  211 286 

Campbell  v.  Sherman,  151  Pa.  St.  70 15 

Carter  v.  Moulton,  51  Kans.  9 117 

Cashman  v.  London  Guarantee  &  Accident  Co.,  187  Mass.  188 ....  518 

Central  Savings  Bank  v.  Shine,  48  Mo.  456 189 

Clark  v.  Kellogg,  96  Mich.  171 380 

Colgrove  v.  Tallman,  67  N.  Y.  95 308 

Cramer  v.  Redman,  10  Wyoming  328 360 

Crane  v.  Specht,  39  Neb.  123 59 

Crim  v.  Fleming,  101  Ind.  154 328 

Davis  Sewing  Machine  Company  v.  Richards,  115  U.  S.  524 209 

Davis  v.  Wells,  104  U.  S.  159 162 

Dexter  v.  Blanchard,  11  Allen  365 392 

Dobie  v.  Fidelity  &  Casualty  Co.,  98  Wis.  540 402 

Douglas  v.  Reynolds,  7  Peters  113 176 

Est.  of  Rapp  v.  Phoenix  Ins.  Co.,  113  111.  390 424 

Evansville  National  Bank  v.  Kaufmann,  93  N.  Y.  273 46 

Farmers'  &  Traders'  Nat.  Bank  v.  Snodgrass,  29  Oregon  395 350 

xi 


xii  TABLE  OF  CASES. 

[REFERENCES  ARE  TO  PAGES.] 

Fidelity  &  Deposit  Co.  v.  Courtney,  186  U.  S.  342 587 

First  Commercial  Bank  v.  Talbert,  103  Mich.  625 GS 

First  National  Bank  v.  Gerke,  68  Md.  449 445 

Freeman,  Appeal  of,  68  Conn.  533 88 

Gates  v.  McKee,  13  N.  Y.  232 27 

Gay  v.  Ward,  67  Conn.  147 414 

George  v.  Andrews,  60  Md.  26 290 

German-American  Title  &  Trust  Co.  v.  Citizens'  Title  &  Trust  Co., 

190  Pa.  St.  247 625 

Goldman  v.  Fidelity  and  Deposit  Co.,  125  Wis.  390. 442 

Gosman  v.  Cruger,  69  N.  Y.  87 132 

Griffith  v.  Rundle,  23  Wash.  453 509 

Gross  v.  Davis,  87  Tenn.  226 354 

Guild  v.  Butler,  122  Mass.  498 492 

Habenicht  v.  Rawls,  24  S.  C.  461 84 

Hall  v.  Peyser,  126  Mass.  195 212 

Hallock  v.  Yankey,  102  Wis.  41 222 

Harner  v.  Dipple,  31  Oh.  St.  72 112 

Hart  v.  United  States.  95  U.  S.  316 487 

Hartley  v.  Sandford,  66  N.  J.  L.  627 387 

Helms  v.  Wayne  Agricultural  Company,  73  Ind.  325 124 

Hidden  v.  Bishop,  5  Rhode  Island  29 324 

Hinckley  v.  Kreitz,  58  N.  Y.  593 332 

Hogg  v.  American  Credit  Indemnity  Co.,  172  Mass.  127 554 

Holloway's  Assignee  v.  Rudy,  22  Ky.  Law  Rep.  1406 92 

Holm  v.  Jamieson,  173  111.  295 495 

Hoover  v.  Mowrer,  84  Iowa  43 357 

Hungerford   v.    O'Brien,   37    Minn.    306 384 

Hyland  v.  Habich,  150  Mass.  112 406 

Johnson  v.  Harvey,  84  N.  Y.  363 408 

Jordan  v.  Dobbins,  122  Mass.  168     411 

Kearnes  v.  Montgomery,  4  W.  Va.  29 382 

Knickerbocker  v.  Wilcox,  83  Mich.  200 94 

Klapworth  v.  Dressier,  2  Beasley's  Chan.  (N.  J.)  62 283 

Kyger  v.  Sipe,  89  Va.  507 137 

Lansdale  v.  Cox,  7  T.  B.  Mon.  (Ky.)  401 352 

Lauer  Brewing  Co.  v.  Riley,  195  Pa.  St.  499 431 

Lee  v.  Dick,  10  Peters  482 203 

Lee  v.  Yandell,  69  Texas  34 138 

Leithauser  v.  Baumeister,  47  Minn.  151 249 

Lieberman  v.  First  Nat.  Bank,  2  Pennwill  (Del.)  416 432 

Lucas  v.  White  Line  Transfer  Co.,  70  Iowa  541 99 

McConnell  v.  Poor,  113  Iowa  133 500 

McDougall  v.  Walling,  15  Wash.  78 239 


TABLE  OF  CASES.  xin 

[BEEEBENCES  ABE  TO  PAGES.] 

McMurray  v.  Noyes,  72  N.  Y.  523 377 

McXaught  v.  McClaughry,  42  N.  Y.  22 22 

March  v.  Fidelity  &  Deposit  Co.,  79  Md.  309 611 

Macfarland  v.  Heim,  127  Mo.  327 24 

Merchants'  Nat  Bank  v.  Citizens'  State  Bank,  93  Iowa  650 1 

Montgomery  v.  Kellogg,  43  Miss.  486 195 

Mullendore  v.  Wertz,  75  Ind.  431 245 

Nading  v.  McGregor,  121  Ind.  465 158 

National  Mahaiwe  Bank  v.  Peck,  127  Mass.  298 273 

Neff  v.  Homer,  63  Pa,  St.  327 219 

Oberndorf  v.  Union  Bank,  31  Md.  126 . 242 

Opp  v.  Ward,  135  Ind.  241 339 

Owen  v.  Long,  112  Mass.  403 111 

Pace  v.  Pace,  95  Va.  792 363 

Penn  Coal  Co.  v.  Blake,  85  N.  Y.  226. ...... 18 

People  v.  Mercantile  Credit  Guarantee  Co.,  166  N.  Y.  416. 540 

Place  v.  St.  Paul  Title  Ins.  &  Trust  Co.,  67  Minn.  26 584 

Platter  v.  Green,  26  Kan.  252 151 

Post  v.  Losey,  111  Ind.  75 251 

Pursifull  v.  Pineville  Banking  Co.,  97  Ky.  154 278 

Quigley  v.  St.  Paul  Title  Ins.  &  Trust  Co.,  60  Minn.  275 573 

Rapp  v.  Phoenix  Ins.  Co.,  113  111.  390 424 

Rapelye  v.  Bailey,  3  Conn.  438 200 

Rawson  v.  Taylor,  30  Ohio  State  389 295 

Read  v.  Cutts,  7  Greenleaf  (Maine)  186 6 

Risley  v.  Brown,  67  N.  Y.  160 405 

Roberts  v.  Hawkins,  70  Mich.  566 371 

Roberts  v.  Stewart,  31  Miss.  664 230 

Rockville  Nat  Bank  v.  Holt,  58  Conn.  526 v . .  228 

Royal  Insur.  Co.  v.  Davies,  40  Iowa  469 421 

Saint  v.  Wheeler,  75  Ala.  362 453 

Second  National  Bank  of  Lafayette  v.  Hill,  76  Ind.  223 267 

Shakman  v.  United  States  Credit  System  Co.,  92  Wis.  366 533 

Shapleigh  Hardware  Co.  v.  Wells,  90  Texas  110 303 

Shreffler  v.  Hadelhoffer,  133  111.  536 38 

Silvey  v.  Dowell,  53  111.  260 326 

Singer  Man'f'g  Co.  v.  Littler,  56  Iowa  601 451 

Sloman  v.  Mercantile  Guarantee  Co.,  112  Mich.  258 547 

Smith  v.  Molleson,  148  N.  Y.  241 31 

Smith  v.  Shelden,  35  Mich.  42 211 

Southern  Ry.  News  Co.  v.  Fidelity  &  Casualty  Co..  26  Ky.  Law  Rep. 

1217 520 

State  v.  Swinney,  60  Miss.  39 449 

Stensgaard  v.  St  Paul  Real  Estate  Title  Ins.  Co.,  50  Minn.  429....  607 


xiv  TABLE  OF  CASES. 

[BEFEBENCES  ABE  TO  PAGES.] 

St.  Louis  Dressed  Beef  &  P.  Co.  v.  Maryland  Casualty  Co.,  201  U. 

S.  173 525 

Stoner  v.  Millikin,  85  111.  218 129 

Strouse  v.  American  Credit  Indemnity  Co.,  91  Md.  244 555 

Tausig  v.  Reid,  145  111.  486 172 

Thompson  v.  Glover,  78  Ky.  193 187 

T.  M.  Sinclair  &  Co.  v.  National  Surety  Co.,  107  N.  W.  Rep.  184 

(Iowa) 466 

Trustee  of  Schools  v.  Scheick,  119  111.  579 120 

Union  Bank  v.  Coster's  Executors,  3  N.  Y.  203 395 

Union  Mutual  Life  Ins.  Co.  v.  Hanford,  143  U.  S.  185 315 

United  States  v.  Boecker,  21  Wall.  652 213 

Vail  v.  Foster  et  al.,  4  N.  Y.  312 349 

Warrey  v.  Forst,  102  Ind.  205 77 

Weikle  v.  Minneapolis,  St.  P.  &  S.  S.  M.  Ry.  Co.,  64  Minn.  296 13 

Weil  v.  Thomas,  114  N.  C.  197 263 

Wendlandt  v.  Sohre,  37  Minn.  162 403 

Wheeler  v.  Real  Estate  Title  Ins.  &  Trust  Co..  160  Pa.  St.  408 582 

White  v.  Boone,  71  Tex.  712 301 

Wilcox  v.  Draper,  12  Nebraska  138 140 

Willoughby  v.  Fidelity  &  Deposit  Co.,  16  Okl.  546 476 

Wilson  v.  Tebbetts,  29  Ark.  579 321 

Winn  v.  Sanford,  148  Mass.  39 135 


A 

SELECTION  OF  CASES 

ON    THE 

LAW  OF  SURETYSHIP 

AND 

GUARANTY 


CASES 

ON 

SURETYSHIP  AND  GUARANTY 


CHAPTER  I. 

NATURE  OF  CONTRACT. 

a.     Contracts  of  Suretyship  and  Guaranty  are  conditional  or 
absolute  agreements  to    answer  for  the  debt,  default  or 
miscarriage  of  another. 

MERCHANTS'  NAT.  BANK.  v.   CITIZENS'  STATE 
BANK.    1895. 

93  Iowa  650;  61  N.  W.  Rep.  1065. 

Appeal  from  district  court,  Pottawattamie  county;  A.  B. 
Thornell,  Judge. 

Action  at  law  on  an  alleged  guaranty  of  a  draft.  At  the  con- 
clusion of  the  evidence  for  the  plaintiff,  the  court  sustained  a 
motion  to  direct  the  jury  to  return  a  verdict  for  the  defendant. 
A  verdict  was  returned  as  directed,  and  upon  it  a  judgment  in 
favor  of  the  defendant  for  costs  was  rendered.  The  plaintiff 
appeals.  Affirmed. 

ROBINSON,  J.  In  December,  1889,  B.  Arentz  was  engaged  at 
Ocala,  Fla.,  in  the  business  of  buying  and  selling  oranges,  and  0. 
W.  Butts  was  in  the  wholesale  fruit  and  commission  business  in 
Council  Bluffs,  Iowa.  Butts  had  ordered  of  Arentz  a  car  load 
of  oranges,  which  was  shipped  from  Oeala  to  Council  Bluffs,  the 
bill  of  lading  being  taken  in  the  name  of  Arentz.  He  drew  a 
draft  on  Butts  for  $560,  the  price  of  the  oranges,  payable  to  the 
plaintiff,  a  banking  association  organized  under  acts  of  con- 
gress, and  doing  business  at  Ocala,  Fla.,  at  30  days  after  sight. 
Before  the  plaintiff  took  the  draft,  it  required  a  guaranty  of 
payment  by  a  bank  in  Council  Bluffs.  Arentz  notified  Butts 
of  the  demand,  and  he  induced  the  cashier  of  the  defendant,  a 
corporation  of  this  state,  to  sign  and  send  to  the  plaintiff  a 

1 


2  NATURE  OF  CONTRACT. 

telegram,  of  which  the  following  is  a  copy:  "Council  Bluffs, 
Iowa,  Dec.  11,  1889.  To  Merchants'  National  Bank,  Ocala,  Fla. : 
Will  guaranty  Butts'  draft  fjir  car  oranges  from  B.  Arentz.' 
Citizens'  State  Bank.  Chas.  R.  Hannan,  Cashier."  When  the 
telegram  was  received,  the  plaintiff  purchased  the  draft,  taking 
the  bill  of  lading,  which  was  attached  to  it,  and  forwarded  them 
for  collection.  The  oranges  arrived  in  Council  Bluffs  in  bad 
order,  and  Butts  refused  to  receive  them,  and  refused  to  accept 
the  draft.  The  defendant  refused  to  pay  the  draft.  Arentz  is 
insolvent,  and  this  action  is  brought  against  the  bank  on  its 
guaranty.  The  answer  of  the  defendant  alleges  that  the  guar- 
anty was  of  the  solvency  and  ability  to  pay  of  Butts;  that  the 
oranges  were  never  delivered  to  him,  and  that  he  never  accepted 
the  draft,  nor  became  a  party  to  it ;  that  the  defendant  is  a  cor- 
poration, and  had  no  power  to  enter  into  a  contract  to  guaranty 
the  payment  of  a  draft ;  and  that  there  was  no  consideration  for 
the  guaranty.  In  a  reply,  the  plaintiff  alleged  that  it  was  usual 
and  customary  for  the  defendant  and  for  banks,  where  it  was 
doing  business,  to  make  such  guaranties;  that,  at  the  time  the 
one  in  question  was  made,  an  arrangement  had  been  entered  into 
between  the  defendant  and  Butts  by  which  he  was  to  hold  the 
defendant  harmless  on  the  guaranty,  and  that  it  had  money  and 
other  property  in  its  possession  which  belonged  to  him,  of  a  value 
exceeding  its  possible  liability  on  the  guaranty;  that,  by  reason 
of  these  facts,  the  defendant  is  estopped  to  assert  that  the 
guaranty  was  executed  without  authority  and  without  considera- 
tion. The  appellant  contends  that  the  guaranty  was  authorized 
by  the  articles  of  incorporation  of  the  defendant;  that,  if  it 
was  not,  the  plaintiff  was  a  good-faith  purchaser  of  the  draft 
for  value,  and,  as  such,  is  entitled  to  protection,  that,  as  the 
reply  was  not  assailed,  an  estoppel  must  be  regarded  as  suffi- 
ciently pleaded;  that  the  court  erred  in  excluding  evidence 
which  tended  to  prove  an  estoppel,  and  erred  in  taking  the  case 
from  the  jury. 

The  appellant  may  be  right  in  its  claim  in  regard  to  these 
matters,  and  not  be  entitled  to  recover  in  this  action.  If  it  be 
conceded  that  the  guaranty  was  valid,  the  question  which  re- 
mains to  be  determined  is  whether  it  created  any  liability  under 
the  facts  which  the  evidence  tends  to  establish.  As  has  been 
stated,  the  draft  was  for  a  car  load  of  oranges,  which  was  never 
received  by  Butts.  The  bill  of  lading  was  taken  in  the  name 


MERCHANTS'  BANK  v.  CITIZENS'  BANK.  3 

of  the  shipper,  Arentz;  was  transferred  to  the  plaintiff;  and 
was  pinned  to  the  draft  when  it  was  presented  to  Butts  for  ac- 
ceptance. This  must  have  been  done  to  secure  the  payment  of 
the  draft.  There  was  never  any  actual  or  constructive  delivery 
of  the  oranges  to  Butts.  Forcheimer  v.  Stewart,  65  Iowa  596, 
22  N.  W.  886.  They  were  worthless  when  they  reached  Council 
Bluffs.  It  was  the  duty  of  the  consignor  to  deliver  them  in 
merchantable  condition,  and  it  cannot  be  claimed,  under  the  evi- 
dence, that  Butts  was  ever  under  any  obligation  to  receive  them. 
Therefore,  he  was  not  liable  by  reason  of  his  refusal  to  accept 
the  draft.  The  form  of  the  undertaking  of  the  defendant  was 
that  he  would  "guaranty  Butts'  draft  for  car  load  of  oranges 
from  B.  Arentz."  It  was  not  to  be  a  guaranty  of  Arentz'  draft, 
nor  of  a  draft  drawn  on  ButtSj  and  not  accepted  by  him,  but  of 
one  on  which  he  was  liable,  drawn  for  a  car  of  oranges.  In 
view  of  the  admitted  facts  in  this  case,  the  conclusion  is  irresis- 
tible that  the  defendant  did  not  undertake  to  guaranty  the  pay- 
ment of  anything  for  which  Mr.  Butts  should  not  be  liable.  Its 
liability  was  not  intended  to  be  extended  beyond  his,  and  the 
form  of  the  guaranty  was  sufficient  notice  to  the  plaintiff  of  the 
fact.  To  "guaranty"  is  to  promise  "to  answer  for  the  pay- 
ment of  some  debt  or  the  performance  of  some  duty  in  case  of 
the  failure  of  another  person,  who  is,  in  the  first  instance,  liable 
to  such  payment  or  performance."  Bouv.  Law  Diet.;  Manu- 
facturing Co.  v.  Littler,  56  Iowa  603,  9  N.  W.  905.  Since  Butts 
never  became  liable  on  the  draft,  the  guaranty  of  the  defendant 
has  never  become  operative,  and  there  can  be  no  recovery  on 
it. 

There  is  no  ground  for  claiming  that  the  plaintiff  was  a  good- 
faith  purchaser  of  the  draft  for  value.  It  knew  when  it  re- 
ceived the  draft  that  it  had  not  been  accepted,  and  that  it  had 
been  drawn  against  a  consignment  of  oranges  which  had  not 
been  delivered.  It  must  be  charged  with  knowing  from  the 
form  of  the  guaranty  that  the  defendant  would  not  be  liable 
unless  Butts  became  responsible  for  the  payment  of  the  draft. 
Therefore,  to  show  that  the  bank  of  Council  Bluffs  habitually 
gave  guaranties  like  that  in  suit,  and  that  the  defendant  was 
estopped  to  deny  that  it  was  a  valid  obligation,  would  have  been 
without  effect,  and  the  plaintiff  could  not  have  been  prejudiced 
by  the  refusal  of  the  court  to  receive  evidence  to  prove  the  es- 
toppel pleaded. 


4  NATURE  OF  CONTRACT. 

Facts  admitted  or  proven  without  conflict  in  the  evidence 
showed  that  there  was  nothing  upon  which  a  verdict  for  the 
plaintiff  could  have  been  founded,  and  the  district  court  did  not 
err  in  directing  a  verdict  for  the  defendant.  Its  judgment  is 

Affirmed. 


ATJCHANPAUGH  v.  SCHMIDT.     1886. 
70  Iowa  642;  27  N.  W.  Rep.  805;  59  Am.  Rep.  459. 

Appeal  from  Buchanan  circuit  court. 

Action  upon  a  promissory  note  purporting  to  be  executed  as  a 
joint  note  by  one  Charles  Leipold,  and  the  defendant.  The 
note  was  executed  in  Illinois,  where  Leipold  lived,  and  still  lives. 
It  became  due  May  23,  1871,  and  this  action  was  commenced 
January  28,  1885.  The  defendant  pleaded  that  he  signed  the 
note  merely  as  surety;  that  under  the  law  of  Illinois  the  note 
became  barred  as  against  Leipold  by  the  statute  of  limitations ; 
and  that,  being  barred  as  against  Leipold,  the  principal,  it  was 
barred  as  against  his  surety,  the  defendant.  There  was  a  trial 
to  a  jury,  and  a  peremptory  instruction  was  given  to  find  for 
the  plaintiff.  Verdict  and  judgment  were  rendered  accordingly, 
and  the  defendant  appeals. 

ADAMS,  J.  The  note  was  executed  to  one  Schneider,  the  plain- 
tiff's intestate.  The  fact  that  the  note  was  signed  by  the  de- 
fendant as  surety  was  proven  only  by  the  defendant's  wife. 
An  objection  was  raised  to  her  testimony  on  the  ground  that 
she  was  an  incompetent  witness  to  prove  such  fact  as  against  an 
administrator.  The  court  overruled  the  objection,  and  the  evi- 
dence was  admitted,  and  no  question  is  now  raised  as  to  the 
correctness  of  that  ruling.  If  we  should  be  of  the  opinion  that 
she  was  incompetent,  and  that  there  was  no  proper  evidence 
that  the  defendant's  relation  to  the  note  was  that  of  surety,  we 
could  not  affirm  upon  that  ground,  because  we  do  not  know  that 
the  defendant  might  not  have  introduced  other  evidence  upon 
that  point  if  his  wife's  testimony  had  been  excluded. 

"We  come,  then,  to  the  question  raised  by  the  answer  and  the 
admitted  evidence  of  suretyship,  and  that  is  as  to  whether  a 
claim  which  is  barred  by  the  statute  of  limitations,  as  against 
the  principal  debtor,  is  by  reason  thereof  barred  also  as  against 


AUCHANPAUGH  v.  SCHMIDT.  5 

a  surety.  In  answer  to  this  question,  we  have  to  say  that  we 
think  that  it  is.  No  authority  has  been  cited  upon  either  side 
which  is  directly  in  point.  Ordinarily,  we  may  presume  that, 
where  the  statute  has  fully  run  as  against  the  principal,  it 
would  happen  that  it  had  fully  run  as  against  the  surety.  But 
the  case-  before  us  has  this  peculiarity :  The  defendant,  when 
the  note  was  executed,  resided  in  Illinois.  Before  the  note  was 
barred  by  the  statute  of  that  state  he  removed  to  Iowa,  and  be- 
fore the  statute  of  this  state  had  fully  run  the  action  was  com- 
menced. If,  then,  the  defendant  were  a  principal  debtor,  the 
note  would  not  be  barred  as  against  him,  however  it  might  be 
as  against  Leipold.  He  must  therefore  rely  solely  upon  the 
fact  that  he  is  surety  upon  the  note,  and  upon  the  bar  as  against 
Leipold.  Such  being  the  case,  it  is  perhaps  not  surprising  that 
no  authority  should  be  cited  that  is  precisely  in  point.  It  be- 
comes our  duty,  therefore,  to  attempt  to  determine  the  case  on 
principle.  It  would  not  be  denied  that  a  surety  upon  a  note 
may  set  up  any  meritorious  defense  which  the  principal,  if  sued, 
might  set  up  in  his  own  behalf.  Now,  when  the  statute  of  limi- 
tations has  run  as  against  the  principal,  the  law  excuses  him  from 
setting  up  any  meritorious  defense  which  he  may  have,  and 
allows  him  to  rely  upon  the  technical  defense  of  the  statute 
alone.  The  theory  is  that  he  was  not  under  obligations  to  pre- 
serve the  evidence  of  his  meritorious  defense  if  he  had  any,  and 
so  the  court  will  not  inquire  whether  he  had  such  defense  or 
not.  The  statute  has  been  very  properly  denominated  the 
statute  of  repose.  As  the  surety  is  allowed  to  set  up  any  meri- 
torious defense  which  the  principal  might  have  set  up,  we  are 
not  able  to  see  why  he  should  be  required  to  preserve  the  evi- 
dence of  such  defense  after  the  principal  was  not  bound  to  do 
so.  Again,  when  a  surety  pays  a  debt,  it  is  his  right  to  look 
to  the  principal  for  reimbursement.  But  a  surety  paying  a, 
debt  after  it  had  become  barred  as  against  the  principal,  uould 
lie  remediless.  Now,  we  do  not  think  that  a  creditor,  by  his 
own  dilatoriness,  should  be  allowed  to  put  the  surety  in  such 
position.  It  is  not  a  full  answer  to  say  that  a  surety  might 
have  protected  himself.  It  may  be  conceded  that  he  might. 
But,  practically,  sureties  often  overlook  their  obligations  if  their 
attention  is  not  called  to  them,  and  we  do  not  think  that  the  just 
protection  of  the  rights  of  the  creditor  requires  that  we  should 


6  NATURE  OF  CONTRACT. 

hold  so  strict  a  rule  against  them  as  that  for  which  the  plain- 
tiff contends. 

It  is  said,  however,  that  the  defendant,  if  he  is  allowed  to 
plead  the  bar  of  tha  statute  at  all  as  against  the  principal, 
should  have  averred  and  shown  that  no  judgment  in  fact  had 
been  rendered  against  the  principal.  But  we  think  that  we 
•  would  be  justified  in  assuming,  from  the  plea  made,  that  judg- 
ment had  not  been  rendered  until  it  was  averred  and  shown  by 
the  plaintiff  to  the  contrary. 

Reversed. 


b.  A  contract  of  suretyship  creates  an  immediate  and  direct 
liability,  and  is  usually  entered  into  either  jointly  or 
jointly  and  severally  with  the  principal  'debtor,  and  is 
supported  ~by  the  same  consideration  that  supports  the 
contract  of  principal  and  principal  and  surety  may  be 
sued  jointly. 

READ  v.  CUTTS.     1831. 
7  Greenleaf  (Maine)   186;  22  Am.  Dec.  184. 

Assumpsit  on  an  agreement  in  writing,  signed  by  the  defend- 
ant, dated  January  14,  1825,  as  follows :  ' '  Whereas,  Tristram  , 
Hooper,  of  Saco,  has  given  his  several  notes  of  hand  to  James 
Bead  and  Company,  of  Boston,  one  dated  November  25,  1824, 
for  six  hundred  and  eighty-nine  dollars  and  eleven  cents,  and 
the  other  dated  November  26,  1824,  for  one  thousand  one  hun- 
dred and  six  dollars  and  sixty-four  cents;  and  whereas,  said 
Tristram  has  conveyed  to  me  by  his  deed  of  this  date  a  lot  of 
land  in  said  Saco,  being  number,"  etc.  "Now,  for  the  con- 
sideration above,  and  in  consideration  that  the  said  James  Read 
and  Company  have  promised  to  and  will  forbear  to  sue  said 
Tristram  on  said  notes  of  hand  for  and  during  the  term  of 
twelve  months  from  the  date  hereof,  I  promise  to  pay  the  said 
Read  and  Company  the  sum  of  thirteen  hundred  dollars  at  that 
time,  unless  the  same  shall  have  been  paid  by  said  Hooper." 
At  the  trial  it  appeared  that  Hooper  continued  in  business  at 
Saco,  having  a  stock  of  goods  liable  to  attachment  of  the  value 
of  two  thousand  dollars,  from  the  date  of  the  said  notes  till  his 


READ  v.  CUTTS.  7 

death  in  November,  1826.  Hooper 's  estate  being  insolvent,  plain- 
tiffs received  a  dividend  therefrom  of  four  hundred  and  forty- 
four  dollars  and  thirty-nine  cents,  being  the  pro  rata  they  were 
entitled  to  upon  the  two  notes  mentioned  in  the  agreement,  and 
a  third  note  of  two  hundred  and  twenty-nine  dollars  and  twelve 
cents.  The  dividend  was  received  by  plaintiff,  under  an  agree-  "^ 
ment  with  defendant,  that  the  rights  of  neither  should  be  _J 
affected  thereby.  In  the  summer  of  1825,  seven  hundred  dollars 
were  paid  on  the  largest  of  the  two  notes  mentioned  in  defend- 
ant's  agreement.  In  June,  of  the  same  year,  the  defendant  al- 
lowed the  land  conveyed  to  him  by  Tristram  to  be  sold  and  the 
proceeds  to  be  paid  to  Hooper.  No  notice  of  the  non-payment 
of  the  two  notes  was  ever  given  to  the  defendant,  nor  demand 
made  on  him  until  after  the  commencement  of  this  action;  nor 
did  it  appear  that  plaintiff  had  ever  taken  any  measure  to  en- 
force payment  from  Hooper.  "Whether  the  action  could  be 
maintained  was  submitted  to  the  court. 

By  Court,  MELLEN,  C.  J.  Strictly  speaking,  guarantors,  in- 
dorsee, and  co-obligors,  or  co-promisors  are  all  sureties  for 
others,  who  are  the  principals;  but  still,  in  common  parlance, 
the  word  surety  is  used,  in  a  more  limited  sense,  to  mean  a  co- 
obligor  or  co-promisor,  entering  into  a  contract  with  the  prin- 
cipal jointly,  or  jointly  and  severally,  and  at  the  same  time.  He 
may,  in  all  cases,  be  sued  jointly  with  the  principal.  No  de- 
mand of  the  debt,  or  notice  of  its  non-payment  by  the  principal, 
need  be  proved  in  an  action  against  such  surety,  in  any  case. 
But  the  contract  of  a  guarantor  is  entered  into  by  him  before 
or  after  that  of  the  principal,  generally,  and  has,  in  terms,  a 
special  reference  thereto.  His  contract  always  being  of  this 
peculiar  character,  he  must  always  be  sued_sepatately,  and  in 
many  cases  he  can  not  be  made  chargeable  unless  a  seasonable 
demand  of  payment  be  made  on  the  principal,  and  notice  of 
non-payment  given  to  the  guarantor,  where  a  pre-existing  debt 
is  the  subject  of  the  guaranty. 

In  support  of  the  above  positions,  the  following  cases  may  be 
cited:  Hunt  v.  Adams,  5  Mass.  358  (4  Am.  Dec.  68) ;  Carver  v. 
Warren,  Id.  545;  Moies  v.  Bird,  11  Id.  436  (6  Am.  Dec.  179) ; 
White  v.  Rowland,  9  Id.  314  (6  Am.  Dec.  71) ;  Upham  v.  Prince, 
12  Id.  14;  Oxford  Bank  v.  Haynes,  8  Pick.  423  (19  Am.  Dec. 
334)  ;  Sage  v.  Wilcox,  6  Conn.  81 ;  Phillips  v.  Astling,  2  Taunt. 
206 ;  Warrington  v.  Furbor,  8  East,  242 ;  Swinyard  v.  Bowes,  5 


II 


8  NATURE  OF  CONTRACT. 

Mail.  &  Sel.  62;  Cannon  v.  Gibbs,  9  Serg.  &  R.  202.  Another 
distinction  between  a  surety  and  a  guarantor  is  that  a  promise 
of  a  surety  is  supported  by  the  consideration  on  which  the  prom- 
ise of  the  principal  is  founded,  and  no  other  need  be  proved; 
but  the  engagement  of  a  guarantor  must  be  founded  on  some 
new  or  independent  consideration,  except  in  those  cases  where 
the  guaranty  is  given  at  the  time  the  debt  is  contracted  by  the 
principal,  and  so  may  be  considered  as  connected  with  it.  In 
support  of  the  above  principle  in  relation  to  a  guarantor  are  the 
cases  of  Leonard  v.  Vredenburgh,  8  Johns.  29  (5  Am.  Dec.  317) ; 
D'Wolf  v.  Rabaud,  1  Pet.  476;  Bailey  v.  Freeman,  11 'Johns. 
221  (6  Am.  Dec.  371) ;  Hunt  v.  Adams,  and  Sage  v.  Wilcox, 
cited  before;  3  Kent  Com.  86,  87;  Oxford  Bank  v.  Haynes  (19 
Am.  Dec.  334),  before  cited;  and  Packard  v.  Richardson,  17 
Mass.  122  (9  Am.  Dec.  123). 

With  respect  to  the  question  of  demand  and  notice,  in  order 
to  charge  a  guarantor  of  the  payment  of  a  pre-existing  debt, 
there  seems  to  be  less  certainty  than  might  have  reasonably  been 
expected,  considering  the  importance  of  the  subject,  especially 
in  the  commercial  community.  In  the  before-mentioned  cases 
of  Warrington  v.  Furbor,  Phillips  v.  Astling,  Cannon  v.  Gibbs, 
Sage  v.  "Wilcox,  and  Oxford  Bank  v.  Haynes,  and  some  others, 
demand  and  notice  were  decided  to  be  necessary,  unless  in  case 
of  the  insolvency  of  the  principal.  In  Redhead  v.  Carter, 
Goring  v.  Edwards,  Allen  v.  Brightmore,  20  Johns.  365,1  Wil- 
liams v.  Granger,  Cobb  v.  Little,  and  some  others,  such  demand 
and  notice  were  decided  not  to  be  necessary.  It  is  important 
to  ascertain  the  true  grounds  of  these  apparently  opposing  de- 
cisions; and  we  apprehend  that  the  principle  on  which  they 
rest,  when  carefully  examined,  will  explain  their  seeming  con- 
tradictions and  show  their  consistency.  The  essence  of  the  en- 
gagement of  a  guarantor  of  the  character  we  are  considering,  we 
apprehend,  is  that  /the  debt  shall  be  paid,  if  the  creditor  shall 
take  the  usual  and  legal  steps  to  secure  it,  or  render  the  prin- 
cipal 's  liability  absolute.// In  Warrington  v.  Furbor,  Phillips  v. 
Astling,  Cannon  v.  Gibbs,  and  Oxford  Bank  v.  Haynes,  the  guar- 
anty was  that  certain  debts  arising  on  bills  of  exchange  or  prom- 
issory notes,  but  which  were  not  then  payable,  should  be  duly 
honored  and  paid.  The  case  of  Bank  of  New  York  v.  Livingston, 


l-Allen  v.  Rightmere,  20  Johns.  365  (11  Am.  Dec.  288). 


READ  v.  CUTTS.  9 

2  Johns.  Gas.  409 ;  Cumpston  v.  McNair,  1  Wend.  457,  are  of  the 
same  character  and  demand  and  notice  were  held  necessary. 

In  the  case  of  Sage  v.  Wilcox  it  does  not  appear  when  the 
note,  the  payment  of  which  was  guaranteed,  was  made  payable ; 
besides,  in  addition  to  the  want  of  notice  in  due  season,  the  court, 
in  their  opinion,  say  the  promise  alleged  was  absolute,  but  that 
which  was  proved  was  conditional.  It  is  true  that  want  of  de- 
mand and  of  seasonable  notice  was  one  ground  of  the  decision ; 
but  when  we  take  into  consideration  the  terms  of  guaranty,  viz., 
"I  hereby  guaranty  the  payment  of  the  within  note  one  year 
from  this  date,  whether  a  suit  is  brought  against  the  signer, 
Jacob  Wilcox,  or  not,"  it  seems  somewhat  singular  that  the 
court  considered  a  demand  on  the  signer  as  essential.  The 
decision  is  at  variance  with  Williams  v.  Granger,  and  several 
other  important  cases,  among  which  is  that  of  Allen  v.  Right- 
mere,  above  cited.  In  most  of  the  other  cases  before  named, 
where  demand  and  notice  were  held  necessary,  the  plaintiff  had 
not  taken  the  legal  steps  to  charge  the  principal  debtor  and  ob- 
tain the  money,  and  the  omission  so  to  do  was  not  excused  on 
account  of  insolvency.  In  all  these  and  similar  eases  it  is  evi- 
dent that  certain  measures  are  to  be  pursued  by  the  creditor  to 
give  effect  to  the  guaranty,  cases  of  insolvency  excepted.  But 
when  the  debt,  which  is  the  subject  of  the  guaranty,  has  become 
due  and  payable,  and  absolute  before  the  guaranty  is  given,  the 
creditor  has  nothing  to  do  to  perfect  his  legal  claim  on  the 
principal,  it  has  become  perfect,  and  the  guarantor  must  be 
deemed  conusant  of  that  fact ;  and  when  a  creditor 's  rights  upon 
a  bill  of  exchange  or  an  indorsed  note  have  become  absolute  as 
against  all  parties  chargeable  upon  it,  or  when,  from  the  ab- 
solute character  of  the  debt  guaranteed,  nothing  of  a  prelim- 
inary nature  on  the  part  of  the  creditor  is  by  law  required  to 
perfect  his  rights,  why  should  demand  and  notice  be  essential 
to  entitle  him  to  maintain  his  action  against  the  guarantor? 
We  apprehend  that  upon  examination  it  will  be  found  that  the 
cases  cited,  as  well  as  others,  in  which  demand  and  notice  have 
been  held  to  be  unnecessary,  were  decided  upon  the  foregoing 
distinction.  In  Cobb  v.  Little,  Crague's  note  was  dated  April 
30,  1817,  payable  in  six  months,  and  on  the  back  of  the  note  the 
defendant  wrote  these  words:  "I  guaranty  the  payment  of 
the  within  note  in  six  months.  Thomas  Little.  June  3,  1817." 
Here  the  guaranty  was  absolute,  extending  Little 's  term  of  pay- 


10  NATURE  OF  CONTRACT. 

ment  beyond  the  six  months  named  in  the  body  of  the  note ;  and 
nothing  was  by  law  required  to  be  done  by  Cobb  to  perfect  his 
claim  against  Crague.  The  court  held  that  a  demand  on  Crague, 
and  notice  to  Little,  were  not  necessary.  The  court  proceeded 
on  the  same  principle  in  Breed  v.  Hillhouse,  7  Conn.  523,  in 
,  which  the  payee  of  a  promissory  note,  after  it  became  due,  re- 

V  ceived  a  guaranty  of  a  third  person  in  these  words :  "I  hereby 
guaranty  the  payment  of  this  note  within  four  years."  The 
court  held  it  an  absolute  guaranty,  and  that  demand  and  notice 
were  unnecessary.  Here  the  note  being  due  at  the  time  of  the 
guaranty,  nothing  was  required  to  be  done  to  perfect  the  payee 's 
rights  against  the  promisor.  So  in  the  case  of  Norton  v.  Eastman, 
4  Greenl.  421,1  the  court  say:  "If  A  holds  a  note  against  B 
for  one  hundred  dollars,  payable  in  one  year,  and  C  guaranties 
the  payment  of  it  when  due,  in  such  a  case,  notice  is  superflu- 
ous. "  So  in  Allen  v.  Rightmere,  before  cited,  the  court  decided 
that  no  demand  and  notice  were  necessary,  considering  the  prom- 
ise of  the  guarantor  as  absolute  that  the  maker  of  the  note 
should  pay  it,  or  that  he  himself  would.  In  Boyd  v.  Cleveland, 
4  Pick.  525,  the  defendant,  an  indorser,  declared  to  the  plaintiffs, 
,  who  had  no  confidence  in  the  other  parties  to  the  note,  that  he 

*r  should  be  in  New  York  when  the  note  would  become  due,  and 
would  take  it  up,  if  not  paid  by  any  other  party  to  it ;  and  the 
court  held  that  the  plaintiffs  were  not  bound  to  give  notice  of 
the  non-payment  by  the  maker,  as  in  those  cases  where  an 
implied  promise  is  relied  on.  In  Redhead  v.  Carter  no  notice 
was  given,  but  the  cause  was  decided  on  another  ground,  namely, 
that  the  undertaking  or  engagement  was  absolute,  and  so  no 
notice  was  necessary.  It  was  a  case  of  nisi  prius,  and  the  prom- 
ise of  the  defendant  seems  to  have  been  considered  as  an  inde- 
pendent and  original  contract  on  his  part. 

The  case  of  Jones  v.  Cooper,  Cowp.  228,  was  different  from 
the  present;  it  merely  presented  the  question  whether  the  de- 
fendant's promise  was  a  collateral  one,  and  so  was  within  the 
statute  of  frauds.  And  Adney's  case  also  was  one  of  a  collateral 
and  contingent  nature,  and  so  not  provable  before  commis- 
sioners of  bankruptcy. 

In  the  case  at  bar  it  appears  that  Hooper,  on  the  twenty-fifth 
of  November,  1824,  gave  his  promissory  note  to  the  plaintiffs 


1-4  Greenl.  521. 


READ  v.  CUTTS.  11 

for  six  hundred  and  eighty-nine  dollars  and  eleven  cents,  and 
on  the  next  day  gave  them  another  note  for  one  thousand  one 
hundred  and  six  dollars  and  sixty-four  cents,  both  payable 
on  demand;  and  that  the  defendant,  on  the  fourteenth  day  of 
January,   1825,  signed  the  agreement,   on   which  the  present 
action  is  founded;  and  he  states  that  in  consideration  of  a  con- 
veyance of  a  tract  of  land  to  him  by  Hooper,  and  of  the  plain- 
tiffs' promise  to  forbear  to  sue  Hooper  on  said  notes  of  hand, 
for  and  during  the  term  of  twelve  months  from  the  date  of  his 
contract,  and  of  their  actual  forbearance  during  that  term,  he 
would  pay  the  plaintiffs  the  sum  of  one  thousand  three  hundred 
dollars  at  the  end  of  said  twelve  months,  unless  the  same  should 
then  have  been  paid  by  said  Hooper.    The  consideration  of  this 
promise  is  a  legal  one;  and  no  question  is  made  as  to  its  suf- 
ficiency.    No  demand  was  made  on  Hooper  at  the  end  of  the 
twelve  months,  though  for  many  months  after  that  time  he  re- 
mained solvent  and  amply  able  to  pay  the  notes.    And  it  is  not 
denied  that  the  plaintiffs  did  forbear  to  sue  Hooper  during  the 
twelve  months.    On  these  facts  it  is  contended  that  this  action  is 
not  maintainable,  on  account  of  the  omission  to  demand  pay- 
ment of  Hooper  at  the  end  of  the  term  of  credit  to  the  defend- 
ant, and  to  give  notice  of  non-payment  by  him ;  and  also  on  ac- 
count of  the  laches  of  the  plaintiffs  in  not  collecting  the  money 
of  Hooper  in  his  lifetime.    With  respect  to  this  latter  objection, 
we  would  observe  that  it  has  been  repeatedly  decided  that  mere 
delay  to  pursue  the  principal  and  collect  the  money  of  him,  does 
not  discharge  a  surety  or  guarantor,  provided  smli  delay  be  un- 
accompanied by  fraud,  or  an  agreement  not  to  prosecute  the 
principal,  made  without  the  assent  of  such  surety:     Lock  v. 
United  States,  3  Mason  446;  Hunt  v.  Bridgham,  2  Pick.  583 
(13  Am.  Dec.  458)  ;  United  States  v.  Kirkpatrick,  9  Wheat.  724; 
Kennebec  Bank  v.  Tuckerman,  5  Greenl.  130  (17  Am.  Dec.  209). 
As  to  the  objection  that  no  demand  was  made  on  Hooper,  or 
notice  of  non-payment  given  to  the  defendant,  the  cases  before 
cited  as  applicable  to  such  a  guaranty  as  the  present,  furnish 
an  answer.     The  liability  of  Hooper  on  his  notes  to  the  plain- 
tiff was  an  absolute  one  at  the  time  he  signed  the  guaranty ;  they 
had  then  a  perfect  right  of  action  upon  them  against  Hooper, 
without  any  demand  upon  him.    The  defendant  did  not  employ 
the  language  made  use  of  in  the  case  of  Sage  v.  Wilcox,  "I 
guaranty  the  payment  of  the  note";  but  it  is  :    "I  promise  to 


12  NATURE  OF  CONTRACT. 

pay  the  sum  of  one  thousand  three  hundred  dollars  at  that 
time,"  the  end  of  twelve  months,  "unless  the  same  shall  have 
been  paid  by  said  Hooper."  If  the  defendant  at  that  time  had 
called  on  the  plaintiffs  to  pay  the  notes  according  to  his  promise, 
he  would  have  learned  that  they  had  not  been  paid,  and  that  he 
must  pay  them.  Nothing  being  necessary  to  be  done  on  the  part 
of  the  plaintiffs  to  perfect  their  rights  as  against  Hooper,  this 
case  does  not  come  within  the  principle  of  the  decisions  before 
mentioned,  in  which  demand  and  notice  were  held  necessary. 
The  plaintiffs  knew  that  Cutts  had  received  a  conveyance  of  a 
tract  of  land  from  Hooper  by  way  of  indemnity  against  loss  in 
consequence  of  the  guaranty;  and  the  land  thus  conveyed  was 
stated  at  the  argument  to  be  worth  one  thousand  three  hundred 
dollars  or  more ;  and  this  fact  was  not  denied.  This  very  cir- 
cumstance naturally  lulled  the  attention  of  the  plaintiffs,  and 
led  them  to  the  conclusion  that  the  defendant  would  promptly 
fulfill  his  engagement,  attend  to  his  own  interest,  and  take  notice 
of  those  facts  which  might  seriously  affect  it.  Instead  of  all 
which,  within  less  than  six  months  after  giving  the  guaranty, 
he  conveyed  the  land,  and  permitted  Hooper  to  receive  the 
avails  of  it.  He  has  thus  voluntarily  given  up  his  indemnity, 
and  has  placed  himself  in  his  present  situation;  and  there  is  no 
one  but  himself  on  whom  to  cast  any  blame.  There  is  no  proof 
that  the  defendant  ever  informed  the  plaintiffs  of  the  above  fact 
until  after  the  commencement  of  the  present  action. 

As  to  the  question  of  damages,  we  are  of  opinion  that  the  de- 
fendant is  answerable  to  the  extent  of  one  thousand  three  hun- 
dred dollars,  and  interest  thereon  from  January  14,  1826,  unless 
the  payments  which  have  been  made  by  Hooper  have  reduced 
the  sum  now  actually  due  below  the  amount.  It  does  not  appear 
that  those  payments  were  specially  directed  to  be  applied  in 
part  discharge  of  the  defendant's  liability;  and  such  being  the 
case,  the  plaintiffs  had  the  right  to  make  the  appropriation,  and 
consider  the  sums  paid  as  going  to  extinguish,  pro  tanto,  the  por- 
tion of  the  two  notes  not  collaterally  secured  by  the  guaranty  of 
the  defendant:  Brewer  v.  Knapp  et  al.,  1  Pick.  332. 

According  to  the  agreement  of  the  partieSj  a  default  must  be 
entered. 


WEIKLE  v.  MINNEAPOLIS.  ETC.,  RY.  CO.  13 

WEIKLE  v.  MINNEAPOLIS,  ST.  P.  &  S.  S.  M.  EY.  CO.  1896. 
64  Minn.  296;  66  N.  W.  Rep.  963. 

Appeal  from  municipal  court  of  Minneapolis;  Andrew  Holt, 
Judge. 

Action  by  T.  K.  Weikle  against  the  Minneapolis,  St.  Paul  & 
Sault  Ste.  Marie  Railway  Company.  From  a  judgment  for  de- 
fendant, plaintiff  appeals.  Affirmed. 

BUCK,  J.  The  defendant  is  a  railroad  corporation,  operating 
a  line  of  railway  through  Glenwood  and  Elbow  Lake,  in  this 
state,  and  to  Hankinson,  in  the  state  of  North  Dakota;  and,  at 
the  times  mentioned  in  the  complaint,  F.  D.  Underwood  was  the 
general  manager,  and  W.  L.  Martin  the  general  freight  agent,  of 
this  railroad  corporation,  its  business  being  that  of  a  common 
carrier.  On  December  1,  1894,  the  plaintiff  was  the  owner  of  98 
hogs,  the  value  of  $493,  part  of  said  hogs  being  at  Glenwood, 
and  the  others  at  Elbow  Lake,  Minn.,  which  were  stations  on  the 
line  of  defendant's  railway.  Prior  to  the  date  above  named,  tha 
defendant's  general  manager,  Underwood,  and  general  freight 
agent,  Martin,  ascertained  that  the  plaintiff  was  willing  to  dis- 
pose of  said  hogs  for  the  price  of  5  cents  per  pound  for  part  of 
said  hogs,  and  for  51/£>  cents  per  pound  for  the  others ;  and  tihey 
requested  him  to  ship  said  hogs  to  one  R.  H.  Hankinson,  at  Han- 
kinson, N.  D.,  and  informed  him  that,  if  he  would  do  so,  the  de- 
fendant railroad  corporation  ^ould  guaranty  the  payment  to 
plaintiff  of  the  price  of  said  hogs.  Accordingly,  plaintiff 
shipped  said  hogs  to  Hankinson,  N.  D.,  and  delivered  them  to  R. 
H.  Hankinson,  who  was  unwilling  or  unable  to  pay  the  price 
for  them,  or  any  part  thereof,  and  so  informed  the  plaintiff. 
Thereafter,  and  in  the  month  of  December,  1894,  Underwood 
and  Martin,  without  plaintiff's  knowledge  or  consent,  caused 
said  hogs  to  be  shipped  from  Hankinson  to  Minneapolis,  in  this 
state,  and  demanded  of  plaintiff  that  he  should  receive  and  ac- 
cept said  hogs  at  Minneapolis,  which  plaintiff  refused  to  do,  and 
he  demanded  payment  of  defendant  of  the  price  of  the  hogs,  no 
part  of  which  has  ever  been  paid. 

Fairly  construed,  we  think  that  the  complaint  and  findings  of 
the  trial  court  do  not  show  a  purchase  of  the  hogs  by  the  de- 
fendant, but  that  they  were  sent  to  Hankinson  in  the  expectation 
that  he  would  purchase  and  pay  for  them,  and  that,  if  he  did 


14  NATURE  OF  CONTRACT. 

not  do  so,  then  the  manager  and  freight  agent  assured  the  plain- 
tiff that  the  defendant  would  guaranty  such  payment.  Cer- 
tainly in  such  case  the  defendant  was  not  the  principal  or  orig- 
inal purchaser  or  debtor.  The  fact  that  the  general  manager 
and  freight  agent  assured  plaintiff  that  defendant  would  guar- 
anty the  payment  excludes  the  proposition  that  it  was  an  orig- 
inal undertaking,  as  a  purchase,  on  the  part  of  the  defendant. 
In  the  case  of  Dole  v.  Young,  24  Pick.  250,  the  following  writing 
was  signed  and  addressed  to  the  plaintiff  by  the  defendant: 
"Please  send  W.  goods  to  the  amount  of  $100,  and  I  will  guar- 
anty the  same  in  four  months. ' '  And  the  plaintiff,  immediately 
after  the  presentation  thereof,  delivered  the  goods  to  W.  It 
was  held  (Chief  Justice  SHAW  delivering  the  opinion)  that  it 
was  strictly  a  guaranty  of  the  debt  of  W.,  and  not  an  original 
undertaking  of  the  defendant.  It  does  not  appear  that  there 
was  a  completed  sale  to  any  one.  Hankinson  did  not  agree  to 
buy  or  pay  for  the  hogs,  and  he  not  only  refused  to  pay  for 
them,  but  did  not  keep  them.  The  defendant,  not  having  bought 
them  or  paid  for  them,  did  not  seek  to  keep  them,  and  without 
making  any  charges  for  transporting  them  to  North  Dakota, 
shipped  them  back  to  Minneapolis,  where  it  offered  to  deliver 
them  to  plaintiff,  who  refused  to  receive  them.  Whether  the 
hogs  at  Minneapolis  were  worth  more  or  less  than  the  previously 
agreed  price  of  $493,  or  whether  they  would  have  been  worth 
less  than  that  amount  if  delivered  at  Glenwood  and  Elbow  Lake, 
does  not  appear,  and  perhaps  in  this  particular  and  in  this 
action  it  is  not  essential.  We  merely  refer  to  it  for  the  purpose 
of  showing  that  it  does  not  affirmatively  appear  that  the  plain- 
tiff was  damaged  by  the  act  of  the  defendant  in  shipping  the 
hogs  either  way,  or  leaving  them  at  Minneapolis. 

The  appellant's  counsel  suggests  that  a  railroad  corporation 
has  implied  authority  to  do  all  acts  necessary  for  the  full  and 
complete  utilization  of  its  special  powers  which  are  not  impliedly 
excluded  by  the  terms  of  its  grant,  and  cites  the  case  of  State 
Board  of  Agriculture  v.  Citizens'  St.  Ry.  Co.,  47  Ind.  407,  in 
support  of  this  position.  The  facts  in  that  case  are  materially 
different  from  those  appearing  in  this  action.  In  that  case  the 
street-railway  company  had  received  the  benefits,  profits,  and 
advantages  of  the  contract  made  with  it,  and  these  profits  had 
gone  to  swell  the  dividends  of  the  stockholders  of  the  corpora- 
tion, and  the  court  held  it  liable.  The  street-railway  company 


WEIKLE  v.  MINNEAPOLIS,  ETC.,  RY.  CO.  15 

had  subscribed  $1,000,  and  promised  to  pay  the  same  to  the 
state  board  of  agriculture,  as  an  inducement  for  it  to  hold  a  fair 
for  three  successive  years  north  of  the  city  of  Indianapolis, 
whereby  the  street-railway  company  would  be  greatly  benefited 
in  carrying  passengers.  After  receiving  the  benefits  resulting 
from  the  holding  of  such  fair,  it  refused  to  pay  its  subscription, 
and  the  court  held  it  liable.  This  decision  is  criticised  by  Wood, 
E.  E.  552,  citing  Davis  v.  Eailroad  Co.,  131  Mass.  258,  as  hold- 
ing a  diametrically  opposite  doctrine.  We  express  no  opinion 
as  to  which  of  the  cases  states  the  correct  doctrine,  there  being 
no  express  or  implied  contract  of  purchase  between  plaintiff  and 
defendant,  and  the  latter,  not  having  received  any  of  the  profits 
or  benefits  of  the  transaction,  is  not  primarily  liable  to  pay  the 
price  of  the  hogs.  Is  it  liable  upon  the  guaranty  of  its  general 
manager  and  general  freight  agent  that  if  Hankinson,  a  third 
party,  not  shown  to  have  any  business  connection  with  the  de- 
fendant, should  not  pay  the  price  of  the  hogs,  then  the  defend- 
ant would  guaranty  the  payment  of  the  price  thereof  to  the 
plaintiff  ?  We  are  of  the  opinion  that  it  is  not  so  liable.  There 
was  no  express  authority  from  the  corporation  that  the  manager 
or  agent  might  make  such  a  guaranty,  and  there  could  not  be 
any  implied  power,  because  giving  such  guaranty  was  beyond 
the  apparent  scope  of  their  authority.  "A  party  dealing  with  a 
corporation  is  chargeable  with  notice  of  the  nature  and  extent  of 
its  powers,  as  declared  by  its  charter  or  articles  of  association." 
Kraniger  v.  Building  Soc.  (Minn.),  61  N.  W.  904. 

There  has  not  been  any  recognition  or  ratification  of  the  acts 
of  the  general  manager  and  general  freight  agent  by  the  cor- 
poration, and,  whatever  may  be  the  liability  of  the  manager  and 
agent  on  account  of  the  part  which  they  took  in  the  transaction, 
the  defendant  is  not  liable.  Judgment  affirmed. 


CAMPBELL  v.  SHERMAN.     1892. 
151  Pa.  St.  70;  31  Am.  St.  Rep.  735;  25  Atl  Rep.  35. 

McCoLLUM,  J.  On  the  1st  of  January,  1887,  J.  A.  Hornet,  the 
appellant,  bought  of  Adam  Sherman  two  judgments  against  A. 
R.  Eobbins,  on  which  there  was  then  an  unpaid  balance  of 
$592.38,  and  they  were  duly  assigned  to  him.  At  the  same  time 


16  NATURE  OF  CONTRACT. 

j  he  loaned  to  Sherman  $266.62.  To  secure  the  payment  of  the 
judgments  and  the  money  loaned,  he  received  the  bond  of  Sher- 
man in  the  sum  of  $859,  on  which,  by  virtue  of  the  warrant  of 
attorney  contained  therein,  judgment  was  entered  January  3, 
1887.  On  a  distribution  of  the  proceeds  of  a  sale  by  the  sheriff 
on  the  13th  of  September,  1890,  of  the  real  estate  of  Sherman, 
the  appellant  claimed  to  apply  on  his  judgment  the  fund  re- 
maining after  paying  costs  and  prior  liens.  The  subsequent 
lien  creditors  of  Sherman  admitted  that  the  appellant  was  en- 
titled to  receive  the  sum  loaned,  with  interest  thereon,  but  con- 
tended that  Sherman  was  released  from  liability  as  to  the  bal- 
ance, because  of  the  appellant's  failure  to  revive  the  Robbing 
judgments.  To  this  the  appellant  answered  that  his  omission  to 
revive  these  judgments  did  not  release  Sherman,  and  that  if  it 
did  the  creditors  could  not  take  advantage  of  it  on  distribution. 
The  conclusion  reached  by  the  learned  auditor  was,  that  he  could 
not,  at  the  instance  of  the  lien  creditors,  set  aside  or  disregard 
the  judgment  on  the  showing  before  him,  but  that  Sherman 
might,  in  an  appropriate  proceeding,  rely  on  the  appellant's 
negligence  as  a  defense  to  it.  The  learned  president  of  the  com- 
mon pleas  thought  that  this  defense  could  be  successfully  made 
before  the  auditor  by  the  lien  creditors,  and  the  fund  was  ac- 
cordingly awarded  to  them. 

In  reviewing  the  decision  of  the  court  below,  the  first  impor- 
tant inquiry  is^  whether  the  obligation  of  Sherman  in  respect  to 
the  Bobbins  judgments  was  that  of  a  surety  or  of  a  guarantor. 
If  he  was  a  surety,  he  was  not  released  from  liability  by  the 
negligence  of  the  appellant,  and  the  contention  concerning  the 
powers  of  the  auditor  has  nothing  to  rest  upon.  It  is  well  settled 
that  mere  forbearance,  however  prejudicial  to  a  surety,  will  not 
discharge  him,  and  that  the  failure  of  a  creditor  to  revive  a 
judgment  does  not  release  the  surety,  unless  there  was  an  ex- 
press agreement  that  it  should  be  kept  revived  for  his  benefit: 
Winton  v.  Little,  94  Pa.  St.  64;'  United  States  v.  Simpson,  3 
Penr.  &  W.  437;  24  Am.  Dec.  331.  We  think  the  undertaking 
of  Sherman  was  that  of  a  surety.  His  bond  included  the  money 
loaned  and  the  balance  due  on  the  Robbins  judgments,  and  by 
its  express  terms  was  to  remain  in  force  until  the  whole  sum  was 
paid.  The  written  conditions  in  the  bond  define  the  liability  of 
the  obligor,  and  we  cannot  add  to  them,  by  implication,  a  condi- 
tion which  would  render  them  nugatory.  The  written  condition 


CAMPBELL  v.  SHERMAN.  17 

applicable  to  this  contention  is,  that  if  the  judgments  "shall  be 
paid  in  full  by  the  said  A.  R.  Robbins,  his  heirs  and  assigns,  to 
the  said  J.  A.  Hornet,  then  this  obligation  to  be  void,  otherwise 
to  be  and  remain  in  full  force  and  virtue."  The  appellant  pur- 
chased the  judgments  on  the  agreement  of  his  vendor  to  pay 
them  if  Robbins  did  not.  It  was  a  contract  of  suretyship,  and 
not  of  technical  guaranty,  on  which  he  parted  with  his  money. 
On  the  failure  of  Robbins  to  pay  the  judgments  at  maturity,  he 
was  at  liberty  to  proceed  directly  against  the  surety.  He  was 
not  bound  to  resort  to  legal  proceedings  against  Robbins,  or  to 
show  that  they  would  have  been  unavailing,  in  order  to  sustain 
process  upon  the  bond.  He  was  under  no  legal  duty  to  the 
surety  to  revive  the  judgments,  unless  requested  to  do  so;  and 
as  no  such  request  was  made^  negligence  in  this  particular  can- 
not be  imputed  to  him. 

The  law  on  this  subject  is  stated  by  AGNEW,  J.,  in  Reigart  v. 
White,  52  Pa.  St.  440,  as  follows:  "A  contract  of  suretyship  is 
a  direct  liability  to  the  creditor  for  the  act  to  be  performed  by 
the  debtor,  and  a  guaranty  is  a  liability  only  for  his  ability  to 
perform  this  act.  In  the  former  the  surety  assumes  to  perform 
the  contract  of  the  principal  debtor  if  he  should  not ;  and  in  the 
latter  the  guarantor  undertakes  that  his  principal  can  per- 
form,— that  he  is  able  so  to  do.  From  the  nature  of  the  former, 
the  undertaking  is  immediate  and  direct  that  the  act  shall  be 
done,  which,  if  not  done,  makes  the  surety  responsible  at  once; 
but  from  the  nature  of  the  latter,  non-ability — in  other  words, 
insolvency — must  be  shown."  In  Kramph's  Ex'x  v.  Hatz's 
Ex'rs,  52  Pa.  St.  525,  WOODWARD,  C.  J.,  discussing  the  same 
subject,  said:  "The  contract  of  a  guarantor  is  to  be  carefully 
distinguished  from  that  of  a  surety ;  for  whilst  both  are  accessory 
contracts,  and  that  of  a  surety  in  some  sense  conditional,  as  that 
of  a  guarantor  is  strictly  so,  yet  mere  delay  to  sue  the  principal 
debtor  does  not  discharge  a  surety.  The  surety  must  demand 
proceedings,  with  notice  that  he  will  not  continue  bound  unless 
they  are  instituted:  Cope  v.  Smith,  8  Serg.  &  R.  110;  11  Am.  , 
Dec.  582.  By  his  contract  he  undertakes  to  pay  if  the  debtor 
do  not, — the  guarantor  undertakes  to  pay  if  the  debtor  cannot. 
The  one  is  an  insurer  of  the  debt;  the  other  an  insurer  of  the 
solvency  of  the  debtor.  It  results,  as  a  matter  of  course,  out  of 
the  latter  contract,  that  the  creditor  shRll  use  due  dilicrence  to 
make  the  debtor  pay;  and  failing  in  this,  he  lets  go  the  guar- 
2 


18  NATURE  OF  CONTRACT. 

an  tor."  The  foregoing  extracts  from  the  opinions  of  eminent 
Pennsylvania  jurists  draw  with  remarkable  clearness  and  pre- 
cision the  distinction  between  a  contract  of  suretyship  and  a 
contract  of  guaranty,  and  accurately  define  the  respective  rights 
and  obligations  of  a  surety  and  a  guarantor.  There  has  been  no 
departure  by  this  court  from  the  principles  announced  in  them, 
and  they  sustain  the  contention  of  the  appellant  that  his  omis- 
sion to  revive  the  Bobbins  judgments  did  not  affect  Sherman's 
liability  on  his  bond.  It  follows  that  it  was  error  to  award  the 
fund  to  the  subsequent  lien  creditors. 

Decree  reversed,  and  record  remitted  to  the  court  below,  with 
direction  to  distribute  the  fund  in  accordance  with  this  opinion. 
The  costs  of  this  appeal  to  be  paid  by  the  appellees. 


THE  PENNSYLVANIA  COAL  CO.  v.  BLAKE.     1881. 

85  N.  Y.  226. 

Appeal  from  judgment  of  the  General  Term  of  the  Superior 
Court  of  the  city  of  Buffalo,  entered  upon  an  order  made  April 
1,  1879,  which  affirmed  a  judgment  in  favor  of  plaintiff,  entered 
upon  a  decision  of  the  court  on  trial  at  Special  Term. 

FOLGEK,  Ch.  J.  The  first  point  made  by  the  appellant  is,  that 
the  mortgage  given  by  her  was  without  consideration  and  is 
void. 

It  is  so,  that  the  appellant  took  no  money  consideration,  nor 
any  strictly  personal  benefit,  for  the  giving  of  the  mortgage  by 
her.  It  was  made  for  the  benefit  of  others  than  her,  entirely  as 
a  security  for  debts  owing  by  them,  and  to  procure  for  them 
further  credit  and  favor  in  business.  In  other  words,  the  lands 
of  the  appellant  became  the  surety  for  the  liabilities  of  the  busi- 
ness firm  of  which  her  husband  was  a  member.  It  is  so,  also, 
that  the  contract  of  surety  needs  a  consideration  to  sustain  it,  as 
well  as  any  other  contract.  (Bailey  v.  Freeman,  4  Johns.  280 ; 
Leonard  v.  Vredenburgh,  8  id.  29.)  But  that  need  not  be  some- 
thing passing  from  the  creditor  to  the  surety.  Benefit  to  the 
principal  debtor,  or  harm  or  inconvenience  to  the  creditor,  is 
enough  to  form  a  consideration  for  the  guaranty;  and  the  con- 
sideration in  that  shape  may  be  executory  as  well  as  executed  at 


PENNSYLVANIA  COAL  CO.  V.  BLAKE.  19 

the  time.  (McNaught  v.  McClaughry,  42  N.  Y.  22;  8  Johns., 
supra.)  Now,  here  was  an  agreement  by  the  plaintiff  to  extend 
the  payment  of  part  of  the  debt  owing  by  the  principal  debtor 
for  a  definite  time,  if  the  debtor  would  procure  the  mortgage  of 
the  appellant  as  a  security  for  the  ultimate  payment  of  the 
amount  of  the  debt  thus  extended.  (Sage  v.  Wilcox,  6  Conn.  81; 
Breed  v.  Hillhouse,  7  Id.  523.)  Though  the  actual  execution  of 
the  mortgage  by  the  appellant  was  on  a  day  subsequent  to  that 
of  the  agreement  between  the  creditor  ancTThe  principal  debtors, 
and  subsequent  to  the  dates  of  the  extension  notes,  the  mortgage 
and  the  notes  were  made  in  pursuance  of  that  agreement,  in  con- 
sideration of  it  and  to  carry  it  out.  The  findings  are  full  and 
exact  on  this  point,  and  are  sustained  by  the  testimony.  There 
is  no  priof  that  the  actual  delivery  of  the  notes  and  mortgage 
was  not  contemporaneous ;  though  the  dates  of  the  notes  and  the 
mortgage  and  the  entry  of  credit  in  the  books  of  the  plaintiff 
do  not  correspond.  All  was  done  in  pursuance  of  one  agree- 
ment, and  the  plaintiff  was  not  bound  to  forbearance  until  the 
mortgage  was  delivered.  It  was  not  until  then  that  the  agree- 
ment to  forbear  was  fixed  and  the  consideration  of  benefit  to  the 
principals  was  had.  It  was  not,  therefore,  a  past  consideration. 

It  is  not  necessary  to  consider  whether  the  appellant  is  not 
estopped  by  the  agreement  of  February  25,  1876,  from  setting 
up  a  want  of  consideration. 

The  second  point  made  by  the  appellant  is  that  one  of  the 
notes  given  on  the  extension  was  paid  by  the  principals,  and 
that  the  land  is,  by  so  much  as  the  amount  of  that  note,  relieved 
from  the  lien  of  the  mortgage.  The  difficulty  in  upholding  this 
position  is  in  the  facts.  Doubtless  it  was  the  purpose  of  the 
principals,  when  they  went  to  the  creditor  with  the  checks,  that 
the  note  should  be  paid.  They  never  made  the  positive  offer  of 
them  to  the  plaintiff  to  that  end,  in  such  way  as  that  the  plaintiff 
must  take  them  for  that  explicit  purpose  or  reject  them.  If  the 
principals  had  insisted  that  the  checks  should  be  applied  in 
payment  of  the  notes,  they  would  have  been;  but  upon  being 
given  their  option  to  have  them  thus  applied  and  their  credit  on 
open  account  stopped,  or  applied  on  open  account  and  their 
credit  thereon  continued,  they  preferred  the  latter.  The  creditor 
recognized  the  right  of  the  debtors  to  apply  where  they  chose, 
and  but  exercised  its  right  to  urge  and  convince  to  a  different 
application.  The  appellant,  as  surety,  cannot  take  any  advan- 


20  NATURE  OF  CONTRACT. 

tage  from  what  passed,  for  there  was  never  an  application  to  the 
notes  insisted  upon  by  the  principals,  or  made  in  fact,  or  more 
than  spoken  of,  and  there  was  acquiescence  by  each  of  the  prin- 
cipals in  the  course  that  was  taken.  The  checks  were  not  re- 
ceived as  a  payment ;  they  were  not  left  as  a  payment ;  they  were 
left  in  abeyance,  their  ultimate  application  or  return  to  be  de- 
termined after  further  consideration.  Moreover,  by  the  subse- 
quent agreement,  made  by  the  appellant,  the  note  is  treated  as 
unpaid,  and  enters  into,  and  the  subject-matter  thereof  is  part 
of,  the  joint  debt  of  the  principals,  assumed  by  the  appellant's 
husband,  guaranteed  by  her  and  for  the  payment  of  which  she 
pledged  her  separate  estate.  This  agreement  was  made  on  good 
consideration,  expressed  in  the  instrument,  and  unless  the  agree- 
ments of  parties  who  are  married  women  are  to  be  nothing  more 
substantial  than  summer  winds,  she  is  estopped  thereby. 

The  third  point  is  that  there  should  not  have  been  a  personal 
judgment  against  the  appellant.  The  judgment  is  based  upon 
the  guaranty  contained  in  what  we  have  called  the  subsequent 
agreement,  and  which  contains  the  individual  and  personal 
guaranty  by  the  appellant  of  the  payment  of  a  sum  named, 
upon  demand  therefor  made  (by  Clarence  A.  Blake,  and  his  re- 
fusal or  neglect  to  pay.  It  is  averred  in  the  complaint  that  a 
demand  was  made  upon  Clarence  A.  Blake.  There  is  a  general 
denial  in  the  answer  of  the  allegations  of  the  complaint,  save 
those  that  state  the  execution  of  the  mortgage  and  the  agree- 
ment. There  is  no  finding  that  a  demand  was  made.  There 
is  no  request  to  find  that  there  was  not  a  demand.  There  is  no 
proof  that  there  was  a  demand  in  fact  made.  Demand  and 
notice  are  often  duties  of  imperfect  obligation,  and  may  in  such 
case  be  omitted,  if  the  facts  are  such  that  no  benefit  can  result 
from  the  making  of  them  (Hickling  v.  Hardey,  7  Taunt.  313)  ; 
but  then  he  who  should  have  made  the  demand  must  show  the 
inutility  of  them,  and  that  was  not  done  here.  The  appellant 
is  a  surety,  and  demand  of  the  principal  is  a  part  of  the  contract 
(Nelson  v.  Bostwick,  5  Hill  27)  ;  it  is  one  of  the  conditions  prece- 
dent to  her  obligation  to  pay.  If  this  position  had  been  taken  or 
relied  upon  at  the  trial,  we  should  feel  obliged  to  maintain  it 
here.  There  is  nothing  in  the  case  to  show  that  it  was  suggested 
or  thought  of  at  the  trial,  where  the  plaintiff  might  have  shown 
a  demand  made,  or  the  utter  inutility  of  one.  The  denial  in  the 
answer  is  not  one  that  would  positively  indicate  a  purpose  to 


PENNSYLVANIA  COAL  CO.  v.  BLAKE.  21 

make  the  matter  of  a  demand  one  of  the  contested  issues  on  the 
trial,  though  it  would  have  been  enough  on  which  to  take  the 
position  there.  It  does  not  appear  that  the  point  was  made  at 
General  Term;  rather,  from  a  perusal  of  the  opinion  there  de- 
livered, we  should  gather  that  the  position  taken  was  not  that 
there  had  been  no  ground  for  personal  liability  established,  but 
that  the  decision  of  the  trial  court  had  made  the  personal  liabil- 
ity absolute  and  not  contingent  upon  a  deficiency  arising  upon  a 
sale  of  the  lands,  a  position  which  is  met  by  the  General  Term 
in  its  observation  that  though  such  is  the  decision,  the  judgment 
is  as  the  appellant  would  have  it,  in  that  respect.  On  the  whole 
we  think  that  the  case  shows  no  error  in  this  particular  calling 
for  a  reversal  or  even  a  modification. 

The  fourth  point  is,  that  if  there  was  no  payment  of  the  first 
note  that  fell  due,  then  there  was  an  extension  of  time  given  to 
the  principals,  that  discharged  the  lands.  This  is  claimed  to 
grow  out  of  the  application  of  money  on  open  account  instead  of 
on  the  note.  It  is  said  that  the  note  not  having  been  paid,  the 
tune  of  payment  of  it  was  by  that  act  or  omission  extended.  The 
test  is,  could  the  surety  have  paid  the  note,  and  enforced  the  con- 
sequent liability  against  the  makers? 

There  was  no  valid  agreement  between  them  and  the  payee 
for  an  extension,  which  either  could  have  maintained  against 
the  other.  The  payee  could  not3  on  the  ground  of  a  valid  exten- 
sion, have  lawfully  refused  the  offer  of  the  surety  to  pay  the 
note;  nor  could  the  makers  on  that  ground  have  lawfully  resisted 
the  claim  of  the  surety  for  the  amount,  had  it  been  paid.  Be- 
sides, upon  thjs  point  as  well  as  upon  others  in  the  case,  the  sub- 
sequent acts  and  agreements  of  the  appellant  estop  her  from  set- 
ting up  such  facts  against  a  recovery. 

It  follows  that  the  judgment  appealed  from  should  be  affirmed. 

All  concur. 

Judgment  affirmed. 


22  NATURE  OF  CONTRACT. 

McNAUGHT  v.  McCLAUGHRY.     1870. 
42  N.  Y.  22;  1  Am.  Rep.  487. 

Appeal  from  judgment  of  supreme  court,  general  term,  affirm- 
ing judgment  of  referee. 

The  action  was  on  a  promissory  note  made  by  one  Abram  Mc- 
Claughry,  and  signed  as  surety  by  the  defendant's  testator. 
The  facts  sufficiently  appear  in  the  opinion. 

HUNT,  J.  The  case  presents  but  a  single  question.  Abram 
McClaughry  borrows  money,  or  makes  a  purchase,  of  the  plain- 
tiff, for  which  he  gives  him  his  note  for  $300,  with  interest. 
No  time  of  payment  is  specified.  At  the  time  of  making  and  de- 
livering the  note,  Abram  promised  and  agreed  with  the  plaiu- 
tiff,  that  he  would  procure  his  father  to  sign  the  note  as  surety, 
if  at  anj  time  the  plaintiff  should  desire  it,  or  should  deem  him- 
self insecure.  The  plaintiff  accepted  the  note  upon  this  agree- 
ment. In  a  few  months  the  plaintiff  desired  the  additional  se- 
curity, and  Abram  procured  his  father  to  sign  the  note  for  the 
accommodation  of  him,  Abram,  and  redelivered  it  to  the  plain- 
tiff. No  new  consideration  then  passed  between  the  parties  or 
to  the  father. 

I  cannot  doubt  that  the  defendant  is  liable  in  this  action. 
Both  principle  and  authority  concur  in  this  result.  The  note 
was  past  due  when  the  holder  became  dissatisfied  with  his  secur- 
ity. He  informs  the  maker  that  he  is  not  satisfied.  Two  courses 
were  open  to  the  latter,  to  pay  the  note  or  to  give  the  holder  ad- 
ditional security.  He  adopts  the  last  alternative.  He  procures 
his  father  to  put  his  name  upon  the  note,  and,  in  the  language 
of  the  judge,  "redelivered"  to  the  plaintiff  the  note  thus  signed. 
I  am  not  able  to  see  why  this  is  not  a  new  agreement  upon  a 
present  and  valid  consideration,  and  obligatory  upon  all  parties. 

The  case  was  argued,  however,  chiefly  upon  the  second  ground, 
to  wit:  That  at  the  time  of  obtaining  the  money  or  property, 
and  as  a  portion  of  the  bargain  by  which  the  plaintiff  accepted 
the  note,  the  maker  agreed  to  obtain  the  name  of  his  father  upon 
the  same,  whenever  desired  by  the  plaintiff,  and  that  the  sig- 
nature was  given  in  performance  of  that  agreement.  This  posi- 
tion is  sound  also.  Suretyship  upon  promissory  notes  may  be 
made  in  various  forms,  as  by  becoming  an  undersigner,  an  in- 
dorser,  or  formal  guarantor.  In  every  form  the  existence  of  a 


McNAUGHT  v.  McCLAUGHRY.  23 

sufficient  consideration  between  the  maker  and  the  lender  estab- 
lishes a  sufficient  consideration,  also,  as  against  the  surety.  In 
practice  there  is  usually  no  communication  between  the  lender 
and  the  surety.  The  business  is  transacted  between  the  prin- 
cipals alone.  A  borrower  applies  at  a  bank  for  a  loan,  offering 
to  furnish  the  name  of  his  friend  as  security,  or  presents,  in  the 
first  instance,  a  note  so  indorsed.  It  is  neither  customary  nor 
necessary  for  the  bank  to  investigate  the  relations  existing  be- 
tween, or  the  motives  operating  upon,  the  different  parties.  It 
is  enough  that  it  is  the  fact  that  the  one  is  willing  to  become 
the  surety  for  the  other.  In  inquiring  into  the  consideration,  we 
inquire,  therefore,  only  so  far  as  to  ascertain  that  a  sufficient 
consideration  exists  between  the  principals  in  the  transaction. 

How  is  it  in  the  case  before  us  ?  The  authorities  are  clear  upon 
the  two  propositions  involved  in  the  question.  1.  If  Abram 
had  given  his  note  to  the  plaintiff,  and  the  same  had  been  ac- 
cepted in  performance  of  the  contract  without  further  condition, 
and  the  note  was  yet  unmatured,  the  obtaining  an  additional  in- 
dorser  would  have  been  a  gratuitous  act  on  the  part  of  Abram, 
and  the  indorser  would  not  be  bound.  He  would  not  be  bound, 
not  because  there  was  no  direct  consideration  moving  to  himself, 
but  because  there  was  no  sufficient  consideration  moving  to  his 
principal.  On  the  other  hand,  if  Abram  had  originally  agree! 
with  the  lender  that  he  would  obtain  the  new  indorser,  and  had 
obtained  the  money  upon  the  faith  of  that  promise,  then  his  find- 
ing the  additional  indorser  was  based  upon  a  valid  consider- 
ation, and  the  indorser  was  held  by  his  signature.  To  this  pre- 
cise point  is  the  case  of  Moies  v.  Bird,  11  Mass.  436.  This  case 
has  been  recognized  and  affirmed  in  Hawkes  v.  Phillips,  7  Gray 
284;  Lovering  v.  Fogg,  18  Pick.  540;  Leonard  v.  Wildes,  36  Me. 
265.  See,  also,  Parks  v.  Brinckerhoff,  2  Hill  663 ;  Clark  v.  llaw- 
son,  2  Denio  135. 

I  see  no  objection  to  the  admissibility  of  the  testimony  com- 
plained of. 

Judgment  should  be  affirmed  with  costs. 

LOTT  and  SUTHERLAND,  J.J.,  dissented. 

Judgment  affirmed. 


24  NATURE  OF  CONTRACT. 


c.  A  contract  of  guaranty  is  usually  independent  of,  and 
yet  collateral  to,  the  contract  of  the  principal, '  and  is 
usually  entered  into  before  or  after  the  making  of  the 
contract  of  the  principal,  and  when  made  aftenvard  must 
be  supported  by  a  new  and  independent  consideration, 
and  principal  and  guarantor  cannot  be  sued  jointly. 

MACFARLAND  v.  HEIM.    1895. 
127  Mo.  327;  29  S.  W.  Rep.  1030;  48  Am.  St.  Rep.  629. 

SHERWOOD,  J.  Action  on  a  written  lease  bearing  date  August 
1,  1888,  to  recover  rent  from  April,  1889i  to  December  of  that 
year,  both  months  inclusive.  Lau  was  the  lessee,  Heim  the  guar- 
antor, and  Ellen  J.  Macfarland  and  husband  the  lessors.  The 
land  belonged  to  Mrs.  Macfarland,  who  held  it,  so  it  is  stated, 
' '  as  her  general  estate. ' '  Among  the  defenses  set  up  by  defend- 
ant in  his  answer,  was  a  plea  of  failure  of  consideration  arising 
out  of  the  fact  that  the  alleged  guaranty  was  signed  by  de- 
fendant long  after  the  execution  and  delivery  of  the  lease.  The 
answer  also  denies  an  allegation  of  the  petition  that  the  lease 
had  been  assigned  to  him  by  Lau.  The  evidence  very  clearly 
establishes  that,  after  the  execution  and  delivery  of  the  lease, 
Harding,  the  janitor  of  the  building,  was  sent  out  by  the  husband 
in  order  to  have  Lau  give  security  in  the  form  of  a  guaranty 
from  Heim.  After  some  10  or  12  days  from  the  time  of  the 
execution  and  delivery  of  the  lease,  Heim  was  found,  and  gave 
the  guaranty  indorsed  on  the  lease.  There  was  no  original  un- 
derstanding between  Lau  and  Heim  and  the  Macfarlands,  at  or 
before  the  execution  of  the  lease,  that  Heim  was  to  indorse  the 
lease;  nor  was  the  assignment  indorsed  on  the  lease  by  Lau, 
which  purported  to  transfer  the  lease  to  Heim,  on  the  lease  at 
the  time  the  latter  endorsed  the  lease  as  guarantor;  nor  was 
that  indorsement  under  seal.  This  is  Heim's  testimony,  and 
there  is  no  contradiction  of  it,  nor  does  the  evidence  show  that 
Heim  accepted  the  assignment,  or  even  saw  it  after  it  was  made. 
It  was  made  without  his  knowledge  or  acceptance,  so  he  states, 
and  of  this,  also,  there  is  no  contradiction.  In  these  circum- 
stances, the  trial  court  very  properly  gave  the  following  instruc- 
tions :  "If  the  jury  find  that  the  assignment  of  the  lease  by  Lau 
to  Heim  was  voluntary  on  the  part  of  Lau,  or  made  under  an 


MACFARLAND  v.  HEIM.  25 

arrangement  between  plaintiffs  and  Lau,  and  that  Heim  had 
knowledge  of  said  assignment,  and  never  accepted  it,  then  it 
imposes  no  obligation  or  duty  upon  Heim,  and  he  is  not  bound 
by  it."  "The  court  instructs  the  jury  that  if  they  find  from 
the  evidence  that  plaintiffs,  on  the  1st  day  of  August,  1888, 
executed  and  delivered  to  Jacob  Lau  a  written  lease  of  the 
property  in  question,  and  that  afterwards,  without  any  new 
consideration  passing  from  the  plaintiffs  to  Lau  or  to  defend- 
ant, or  from  Lau  to  defendant,  Heim  executed  a  writing  bind- 
ing himself  for  the  rent,  such  agreement  was  without  consider- 
ation, and  defendant  is  not  bound  by  it. ' ' 

Nothing  is  better  settled  in  this  state  than  that  a  subsequent 
agreement,  which  does  not  form  any  part  of  an  original  con- 
tract, nor  is  supported  by  the  original  consideration  thereof,  nor 
by  any  new  consideration,  is  a  mere  nude  pact,  of  no  force  or 
validity.  Such  is  the  situation  here.  Williams  v.  Williams,  67 
Mo.  662;  McMahan  v.  Geiger,  73  Mo.  145;  Montgomery  Co.  v. 
Auchley,  92  Mo.  126,  4  S.  W.  425.  And  the  trial  court  rightly 
held  that,  unless  Heim  accepted  the  assignment  made  by  Lau  to 
him  of  the  lease,  no  contractual  relations  in  respect  to  that  as- 
signment were  created  between  Lau  and  Heim  in  consequence 
thereof,  nor  any  obligations  cast  on  Heim  as  the  result  of  such 
assignment;  nor  could  Heim,  by  recognizing  himself  to  be  bound 
by  his  invalid  guaranty,  by  promising  to  pay  the  rent,  etc.,  con- 
fer any  retrospective  validity  on  the  considerationless  contract. 
But  the  trial  court  erred  in  holding  and  instructing  that  Mrs. 
Macfarland  (not  being  seised  of  an  equitable  separate  estate) 
could  have  any  agent,  either  in  Harding  or  in  her  husband,  to 
bind  her  by  any  act  of  theirs,  or  that  she  could  ratify  their  void 
acts.  A  void  act  is  incapable  of  ratification.  It  is  impossible 
to  understand  what  is  meant  by  the  words  "general  estate,"  of 
which  it  is  said  Mrs.  Macfarland  was  seised.  It  suffices,  for  the 
present  purpose,  that  it  is  stated  in  the  record  that  it  was  not 
her  "equitable  separate  estate."  It  is  among  the  fundamentals 
of  the  common  law  that  a  married  woman  is  incapable  of  con- 
tracting, and  her  supposed  contracts  are  void.  This  is  still  the 
law,  except  where  statutory  modifications  have  occurred.  If 
thus  incapable  of  contracting,  then  incapable,  also,  of  authoriz- 
ing another  to  contract  for  her;  for  this  would  be  to  make  the 
stream  rise  higher  than  its  fountain  head.  STORY  says:  "*  *  * 
Every  person,  therefore,  of  full  age,  and  not  otherwise  disabled, 


26  NATURE  OF  CONTRACT. 

has  a  complete  capacity  for  this  purpose.  But  infants,  mar- 
ried women,  idiots,  lunatics,  and  other  persons  not  sui  juris  are 
either  wholly  or  partially  incapable  of  appointing  an  agent. 
Idiots,  lunatics,  and  other  persons  not  sui  juris  are  wholly  in- 
capable; and  infants  and  married  women  are  incapable,  except 
under  special  circumstances.  *  *  *  So  in  regard  to  mar- 
ried women,  ordinarily,  they  are  incapable  of  appointing  an 
agent  or  attorney.  *  *  *  With  regard  to  her  separate  prop- 
erty, she  may,  perhaps,  be  entitled  to  dispose  of  it,  or  to  in- 
cumber  it,  through  an  agent  or  attorney,  because  in  relation  to 
such  separate  property  she  is  generally  treated  as  a  feme  sole. 
I  say,  'perhaps',  for  it  may  admit  of  question,  and  there  do  not 
seem  to  be  any  satisfactory  authorities  directly  on  the  point." 
Story,  Ag.  (9th  Ed.)  6.  A  similar  doubt  has  been  elsewhere 
intimated.  Weisbrod  v.  Railway  Co.,  18  Wis.  40,  and  cases 
cited.  In  this  state,  however,  it  has  long  been  steadily  main- 
tained that  a  feme  covert,  as  to  her  separate  estate  in  equity,  is 
a  feme  sole  (Turner  v.  Shaw,  96  Mo.  28,  8  S.  W.  897,  and  cases 
cited) ;  and  therefore  may  charge  her  separate  estate,  and  make 
an  agent  in  regard  thereto,  to  all  intents  and  purposes  as  if  she 
had  never  passed  sub  jugum  matrimonii.  But,  where  she  is  not 
thus  seised,  we  have  held,  over  and  over  again,  that,  not  being 
sui  juris,  of  course  she  could  not  appoint  an  agent.  Wilcox  v. 
Todd,  64  Mo.  388;  Hall  v.  Callahan,  66  Mo.  316;  Silvey  v. 
Summer,  61  Mo.  253;  Henry  v.  Sneed,  99  Mo.  407,  12  S.  W. 
907 ;  Flesh  v.  Lindsay,  115  Mo.  1 ;  Mueller  v.  Kaessmann,  84  Mo. 
318.  Counsel  for  defendant,  however,  make  citation  of  Mead  v. 
Spalding,  94  Mo.  48,  6  S  W.  384,  as  asserting  a  contrary  doc- 
trine, and  so  it  does,  for  it  is  there  broadly  asserted  that  "there 
can  be  no  doubt  but  the  husband  may  be  the  agent  of  the  wife. ' ' 
The  two  cases  cited  from  our  own  Reports  do  not  sustain  that 
position,  because  the  first  one  was  one  where  the  land  of  the 
wife,  the  proceeds  of  which  she  brought  suit  for,  was  "her  sole 
and  separate  property."  Eystra  v.  Capbelle,  61  Mo.  578.  The 
second  one  cited  is  Rodgers  v.  Bank,  69  Mo.  560,  where  the  sub- 
ject of  the  suit  was  the  wife's  money  acquired  by  her  under  the 
married  woman's  act  of  1875,  section  3296.  But  that  section 
authorizes  the  wife  to  appoint  her  husband  as  her  agent  for  the 
disposition  of  her  personal  property,  provided  the  authority  be 
in  writing,  and  we  have  expressly  held  that,  in  regard  to  that 
section,  a  married  woman,  respecting  her  personal  property  held 


GATES  v.  McKEB.  27 

under  its  provisions,  is  a  feme  sole.  Blair  v.  Railroad  Co.,  89 
Mo.  391,  1  S.  W.  350.  We  therefore  decline  to  follow  the  ruling, 
Mead  v.  Spalding.  On  account  of  the  reasons  expressed  in  a 
prior  part  of  this  opinion,  the  error  mentioned  is  a  harmless 
one,  and,  when  this  is  the  case2  such  error  in  giving  erroneous 
instructions  constitutes  no  ground  for  reversal.  Fitzgerald  v. 
Barker,  96  Mo.  666,  10  S.  W.  45 ;  Probst  v.  Brock,  10  Wall.  519. 
Therefore  judgment  affirmed.  All  concur. 


CHAPTER  II. 

CONSTRUCTION  OF  CONTRACT. 

a.  For  the  purpose  of  ascertaining  the  true  meaning  of  con- 
tracts of  suretyship  and  guaranty  the  same  rules  of  con- 
struction are  applied  as  are  resorted  to  in  the  construction 
of  other  contracts.  They  are  to  receive  a  fair  and  reason- 
able construction,  having  in  view  the  purposes  and  inten- 
tion of  the  parties. 

GATES  v.  McKEB.    1855. 
13  N.  Y.  232;  64  Am.  Dec.  545. 

Appeal  from  a  judgment  in  favor  of  plaintiff  in  an  action  on 
a  mercantile  guaranty.  The  facts  appear  in  the  opinion. 

By  Court,  DENIO,  J.  If  this  were  the  first  time  that  an  in- 
strument of  this  character  had  been  before  the  court,  and  we 
were  now  called  upon  to  construe  it  without  the  light  of  ad- 
judged cases,  the  first  inquiry  would  naturally  be  whether  the 
limit  of  five  hundred  dollars  related  to  the  amount  of  pur- 
chases to  be  made  by  M.  E.  McKee  or  to  the  defendant's  ulti- 
mate liability;  and  I  think  it  clearly  qualifies  the  responsibility 
of  the  defendant,  and  not  the  amount  of  M.  E.  McKee 's  future 
transaction  with  the  plaintiff.  It  is  as  if  he  had  said:  "I  will 
be  responsible  to  the  amount  of  five  hundred  dollars  for  what 
stock  M.  E.  McKee  has  had  or  may  want  hereafter,"  etc.  I  also 
think  that  the  words  "what  stock,"  in  their  relation  to  future 
purchases,  have  the  force  of  whatever  stock  or  whatever  amount 
of  stock  he  may  want  hereafter;  and  the  word  "stock"  alone 
denotes  the  supply  of  materials  for  the  business  of  the  party 


2$  CONSTRUCTION  OP  CONTRACT. 

spoken  of.  The  word  "hereafter"  seems  to  be  used  in  an  in- 
definite sense.  It  is  not  at  any  particular  time  in  the  future, 
but  as  if  it  were  written  at  any  time  hereafter.  The  words 
"may  want"  are  significant  as  to  the  character  of  the  future 
dealings  in  contemplation,  and  they  mean  the  same  thing  as 
may  need  or  require,  or  may  have  occasion  for.  M.  E.  McKee 
was  a  shoemaker,  and  the  plaintiff  was  a  leather  manufacturer ; 
and  reading  of  the  paper  as  relating  to  their  respective  occupa- 
tions, and  giving  the  language  the  interpretation  which  I  have 
suggested,  and  leaving  out  what  is  said  of  past  indebtedness  as 
immaterial,  the  following  paraphrase  would  appear  to  me  to  ex- 
press its  true  meaning:  "Sir,  I  will  be  responsible  to  the 
amount  of  five  hundred  dollars  for  whatever  amount  of  ma- 
terials in  his  line  M.  E.  McKee  may  at  any  time  hereafter  re- 
quire." This  is  not  a  refined  or  artificial  interpretation,  but  it 
is  what  the  plaintiff,  or  any  other  person  to  whom  such  a  paper 
might  be  addressed,  would  naturally,  and  in  my  opinion  un- 
avoidably, understand  from  it.  If  this  is  the  meaning  which  the 
paper  naturally  conveys,  it  is  the  sense  which  the  court  is  bound 
to  apply  to  it. 

The  cases  are  not  entirely  harmonious  as  to  the  principles  of 
construction  which  ought  to  govern  in  this  class  of  cases,  but 
the  weight  of  authority  is  altogether  in  favor  of  construing 
guaranties  by  rules  at  least  as  favorable  to  the  creditor  as  those 
which  courts  apply  to  other  written  contracts,  irrespective  of 
the  consideration  that  the  guarantor  is  a  surety.  In  Mason  v. 
Pritchard,  12  East,  227,  the  cour,t  said  the  words  were  to  be 
taken  as  strongly  against  the  party  giving  the  guaranty  as  the 
sonse  of  them  would  admit.  The  same  remark  is  found  in  the 
opinion  of  the  supreme  court  of  the  United  States  in  Drummond 
v.  Prestman,  12  Wheat.  515,  which  was  the  case  of  a  guaranty. 
In  Douglass  v.  Reynolds,  7  Pet.  115,  122,  Judge  STORY  said, 
speaking  of  guaranties :  "As  these  instruments  are  of  extensive 
use  in  the  commercial  world,  upon  the  faith  of  which  large 
credits  and  advances  are  made,  care  should  be  taken  to  hold 
the  party  bound  to  the  full  extent  of  what  appears  to  be  his  en- 
gagement." In  Lawrence  v.  McCalmont,  2  How.  426,  the  atten- 
tion of  the  same  learned  judge  was  directed  particularly  to  this 
question  of  construction.  After  remarking  that  a  question  had 
been  made  on  the  argument  whether  the  letters  of  guaranty 
under  consideration  should  receive  a  strict  or  a  liberal  construe- 


GATES  v.  McKEB.  29 

tion,  lie  said:  "We  have  no  difficulty  whatsoever  in  saying 
that  instruments  of  this  sort  ought  to  receive  a  liberal  interpre- 
tation. By  a  liberal  interpretation  we  do  not  mean  that  the 
words  should  be  forced  out  of  their  natural  meaning,  but  simply 
that  the  words  should  receive  a  fair  and  reasonable  interpreta- 
tion, so  as  to  attain  the  objects  for  which  the  instrument  is  de- 
signed, and  the  purposes  to  which  it  is  applied.  We  should 
never  forget  that  letters  of  guaranty  are  commercial  instru- 
ments, generally  drawn  up  by  merchants  in  brief  language, 
sometimes  inartificial,  and  often  loose  in  their  structure  and 
aim;  and  to  construe  the  words  of  such  instruments  with  a  nice 
and  technical  care  would  not  only  defeat  the  intention  of  the 
parties,  but  render  them  too  unsafe  a  basis  to  rely  on  for  exten- 
sive credits,  so  often  sought  in  the  present  active  business  of 
commerce  throughout  the  world. ' '  Further  on  he  says :  ' '  If  the 
language  used  be  ambiguous  and  admits  of  two  fair  interpre- 
tations, and  the  guarantee  has  advanced  his  money  upon  the 
faith  of  the  interpretation  most  favorable  to  his  rights,  that  in- 
terpretation will  prevail  in  his  favor;  for  it  does  not  lie  in  the 
mouth  of  the  guarantor  to  say  that  he  may,  without  peril,  scatter 
ambiguous  words,  by  which  the  other  party  is  mislead  to  his 
injury." 

These  extracts  express  so  happily  my  notion  of  the  rules  of 
construction  which  ought  to  prevail  in  this  class  of  cases,  that 
I  need  only  add  that  the  same  general  principle  will  be  found 
asserted  with  more  or  less  distinctness  in  Bell  v.  Bruen,  1  How. 
169,  186 ;  Haigh  v.  Brooks,  10  Ad.  &  El.  309 ;  Mayer  v.  Isaac, 
6  Mee  &  W.  605 ;  Dobbin  v.  Bradley,  17  Wend.  422 ;  Hargreave 
v.  Smee,  6  Bing.  244.  In  the  last  case  TISDALE,  C.  J.,  said: 
"There  is  no  reason  for  putting  on  a  guaranty  a  construction 
different  from  what  the  court  put  on  any  other  instrument. 
With  regard  to  other  instruments,  the  rule  is,  that  if  the  party 
executing  them  leaves  anything  ambiguous  in  his  expressions, 
such  ambiguity  must  be  taken  most  strongly  against  himself." 
And  BRONSON,  J.,  in  the  case  referred  to  from  17  Wendell,  re- 
marks that  commercial  guaranties  are  in  extensive  use,  and  that 
he  can  perceive  no  reason  why  they  should  not  receive  the  same 
liberal  construction  for  advancing  the  end  which  the  parties 
had  in  view  as  is  given  to  other  contracts.  I  am  aware  that 
judges  have  in  some  few  instances  spoken  of  the  construction 
strictissimi  juris  as  the  one  to  be  applied  to  all  contracts  where 


30  CONSTRUCTION  OF  CONTRACT. 

sureties  are  sought  to  be  charged,  and  that  Judge  Story  him- 
self, in  an  earlier  case  than  the  one  from  which  I  have  quoted, 
expressed  the  opinion  that  where  it  was  doubtful  whether  a 
guaranty  created  a  continuing  obligation,  the  presumption 
should  be  against  it:  Cremer  v.  Higginson,  1  Mason,  366. 
There  is  a  sense,  undoubtedly,  in  which  it  may  be  said  that  these 
obligations  are  to  be  strictly  construed;  and  it  is  this:  that  the 
security  is  not  to  be  held  beyond  the  very  precise  stipulations 
of  his  contract.  He  is  not  liable  on  an  implied  engagement 
where  a  party  contracting  for  his  own  interest  might  be,  and  he 
has  a  right  to  insist  upon  the  exact  performance  of  any  con- 
dition for  which  he  has  stipulated,  whether  others  would  con- 
sider it  material  or  not.  But  where  the  question  is  as  to  the 
meaning  of  the  written  language  in  which  he  has  contracted, 
there  is  no  difference,  and  there  ought  not  to  be  any,  between 
the  contract  of  a  surety  and  that  of  any  other  party.  I  feel 
no  difficulty,  therefore,  in  reading  the  short  instrument  which 
we  are  called  upon  to  construe  in  the  sense  which  every  person, 
when  informed  of  the  situation  of  the  parties,  and  who  had  con- 
sidered the  nature  of  the  business  it  was  designed  to  facilitate, 
would  naturally  place  upon  it.  If  I  am  right  in  the  meaning 
which  I  have  attributed  to  the  several  expressions  contained  in 
it,  it  did  not  look  to  a  single  transaction,  or  to  dealings  between 
the  parties  to  a  particular  amount,  and  its  purposes  were  not 
fully  accomplished  when  the  person  whose  credit  was  intended 
to  be  aided  had  once  contracted  a  debt  to  the  plaintiff  to  the 
amount  of  five  hundred  dollars,  and  had  paid  that  debt.  It  con- 
templated a  continuous  business  and  a  standing  credit  to  the 
amount  mentioned.  If  I  am  right  in  this  (and  the  question  is 
merely  one  of  construction),  there  is  no  case  or  dictum  which  I 
have  met  with  which  will  exonerate  the  defendant. 

The  adjudications  are  very  numerous,  and  although  I  have 
examined  more  than  I  can  conveniently  refer  to,  I  will  mention 
the  following  only,  each  of  which  contains  principles  which  will 
uphold  the  conclusion  which  I  have  arrived  at,  that  this  contract 
is  a  continuing  guaranty:  Fellows  v.  Prentiss,  3  Denio,  518  (45 
Am.  Dec.  484),  Hand,  senator;  Clark  v.  Burdett,  2  Hall  197; 
Douglass  v.  Reynolds,  7  Pet.  113 ;  Bent  v.  Hartshorn,  1  Met.  24 ; 
Bastow  v.  Bennett,  3  Camp.  220;  Rapelye  v.  Bailey,  5  Conn. 
149  (13  Am.  Dec.  49) ;  Mayer  v.  Isaac,  6  Mee.  &  W.  605;  Mason 
y.  Pritchard,  12  East,  227;  Hargreave  v.  Smee,  6  Bing.  244; 


SMITH  v.  MOLLESON.  31 

Allan  v.  Kenning,  9  Id.  618;  Hitchcock  v.  Humfrey,  5  Man.  & 
Gr.  560;  Martin  v.  Wright,  6  Ad.  &  El.,  N.  S.  917.  In  several 
of  these  cases  the  intention  to  guarantee  a  continuous  trading 
was  much  more  distinctly  expressed  than  in  the  present  case; 
but  in  others,  such  as  Mason  v.  Pritchard,  supra,  which  has 
repeatedly  received  the  sanction  of  the  courts  of  this  country, 
and  has  never  been  disapproved  of  in  any  court,  and  in  Martin 
v.  Wright,  supra,  which  was  decided  quite  recently,  the  same 
liberal,  or  I  may  rather  say  natural  and  reasonable,  intendment 
was  made  which  I  have  supposed  ought  to  be  applied  to  the 
instrument  under  consideration. 

The  objection  that  the  consideration  was  not  sufficiently  ex- 
pressed to  satisfy  the  requirement  of  the  revised  statute  of 
frauds  is  answered  by  the  judgment  of  this  court  in  Union  Bank 
v.  Coster's  Ex'rs,  3  N.  Y.  204  (53  Am.  Dec.  280). 

I  am  in  favor  of  affirming  the  judgment  of  the  supreme  court. 

HAND,  J.2  delivered  a  concurring  opinion. 

Judgment  affirmed. 


SMITH  v.  MOLLESON.    1896. 
148  N.  Y.  241;  42  N.  E.  Eep.  669. 

Appeal  from  supreme  court,  general  term,  First  department. 

Action  by  James  B.  Smith  against  Phebe  G.  Molleson  as 
surety  on  the  bond  of  Pratt  &  Molleson  to  plaintiff.  A  judg- 
ment in  favor  of  plaintiff,  entered  on  the  verdict  directed  by 
the  court,  was  affirmed  by  the  general  term  (26  N.  Y.  Supp. 
652),  and  defendant  appeals.  .Affirmed. 

O'BRIEN,  J.  The  defendant  has  been  held  liable  as  surety 
upon  a  bond  given  to  secure  the  performance,  by  the  contrac- 
tors, of  a  building  contract,  dated  November  1,  1888,  in  which 
they  agreed  to  furnish,  cut,  set,  and  clean  all  the  new  granite 
work  for  the  enlargement  of  a  public  building  in  the  city  of 
New  York.  The  plaintiff  agreed  to  pay  the  contractors  for  this 
work  the  sum  of  $30,000,  in  monthly  payments  of  not  to  exceed 
80  per  cent,  "of  the  estimated  value  of  the  work  performed  on 
the  building,"  the  balance,  or  final  payment,  to  be  made  when 
the  work  was  completed.  The  work  was  to  be  done  according 
to  drawings  and  specifications  referred  to  in  the  contract,  and 


32  CONSTRUCTION  OF  CONTRACT. 

the  payments  made  upon  the  certificate  of  the  plaintiff's  super- 
intendent. The  rights  and  obligations  of  the  parties  are  speci- 
fied in  the  contract  with  minute  detail,  and  among  other  things, 
it  was  stipulated  that,  in  case  the  contractors  failed  to  perform, 
the  plaintiff  might  take  possession  of  the  work  and  complete  it 
at  the  contractors'  expense.  It  is  conceded  that  they  failed  to 
perform  and  that  the  plaintiff  was  obliged  to  complete  the  work 
himself  at  an  expense  of  several  thousand  dollars  more  than  the 
contract  price.  It  was  agreed  between  the  plaintiff  and  the  con- 
tractors that  the  latter  should  give  to  him  a  bond  to  insure  the 
faithful  performance  of  the  contract,  and,  in  pursuance  of  this 
agreement,  the  defendant,  in  behalf  of  the  contractors,  executed, 
under  seal,  and  delivered,  the  instrument  upon  which  this  actiony 
was  brought.  It  bears  date  December  27,  1888,  and  was  ex- 
ecuted subsequent  to  the  contract,  and  one  of  the  conditions  is 
that  the  contractors  should  well  and  truly  perform  the  contract 
referred  to,  according  to  its  terms,  in  which  case  the  instrument 
should  be  void  and  of  no  effect,  but  that,  in  case  they  failed  to 
so  perform,  the  defendant  would  pay  to  the  plaintiff  his  dam- 
ages, sustained  by  reason  of  such  non-performance,  not  exceed- 
ing a  sum  named.  It  is  conceded  that  the  plaintiff  sustained 
damages  by  reason  of  the  failure  of  the  contractors  to  perform 
their  contract,  and  the  recovery  is  within  the  limits  of  the  bond. 
The  defense  is  that  the  bond  was  given  without  consideration, 
and  that  the  defendant  became  released  from  its  obligations  by 
reason  of  changes  in  and  departures  from  the  contract  guaran- 
teed, without  the  defendant's  consent,  by  the  parties  thereto. 
At  the  trial  a  verdict  was  directed  for  the  plaintiff. 

The  plaintiff  entered  into  the  contract  and  bound  himself,  ac- 
cording to  its  terms,  upon  the  faith  of  the  promise  of  the  con- 
tractors to  give  the  bond,  and  it  is  admitted  that  if  this  was 
concurrent  with  the  execution  and  delivery  of  the  instrument, 
it  would  constitute  a  sufficient  consideration.  But,  since  the 
bond  was  given  afterwards,  and,  as  the  defendant  claims,  sub- 
sequent to  the  time  that  the  contractors  had  entered  upon  the 
actual  performance  of  the  contract,  it  is  insisted  that  it  required 
some  new  consideration.  If  it  be  true  that  the  evidence  in  the 
case  would  warrant  a  finding  by  the  jury  that  the  contractors 
were  engaged  in  the  performance  of  the  contract  whsn  the  bond 
was  given,  it  would  also  be  true  that  this  was  by  the  grace  and 
pleasure  of  the  plaintiff,  and  not  by  virtue  of  any  right  under 


SMITH  v.  MOLLESON.  33 

the  contract.  Their  right  to  insist  upon  performance,  as  against 
the  plaintiff,  and  to  receive  the  benefit  of  the  contract,  was  not 
perfected  until  the  bond  was  given.  Whatever  the  contractors 
may  have  assumed  to  do  before,  it  was  only  upon  the  delivery 
of  the  bond  that  the  contract  became  complete  and  binding 
upon  the  plaintiff  and  hence  the  mutual  obligations  imposed 
upon  the  contractors  at  one  time,  and  upon  the  plaintiff  at  an- 
other, furnished  a  consideration  for  the  bond.  Bank  v.  Coit, 
104  N.  Y.  532,  11  N.  E.  54. 

The  other  defense  rests  mainly  upon  a  construction  of  the 
contract  which  the  defendant  claims  to  be  the  correct  one.  It 
should  be  observed  at  the  outset  that  the  contract  guarantied 
is,  by  reference,  made  a  part  of  the  bond,  and  therefore,  in 
order  to  determine  the  scope  of  the  defendant's  undertaking, 
the  two  instruments  must  be  read  together.  It  is  true,  as  the' 
learned  counsel  for  the  defendant  contends,  that  the  liability  of 
a  surety  is  strictissimi  juris.  But  that  does  not  mean  that  a 
different  rule  must  be  applied  in  the  construction  of  contracts 
of  suretyship  than  that  which  is  to  be  applied  in  the  construc- 
tion of  contracts  in  general.  Like  all  other  contracts,  the  under- 
taking of  a  surety  must  be  construed  fairly  and  reasonably,  and 
according  to  the  intention  of  the  parties.  If  the  surety  has 
used  ambiguous  language,  and  the  party  secured  has  advanced 
his  money  on  the  faith  of  the  interpretation  most  favorable  to 
his  rights,  that  will,  ordinarily,  prevail,  if  the  instrument  is 
open,  reasonably,  to  such  interpretation.  It  means  that  a  surety 
shall  not  be  held  beyond  the  precise  stipulations  of  his  contract. 
He  is  not  liable  on  any  implied  engagement,  where  a  party  con- 
tracting for  his  own  interest  might  be,  and  he  has  the  right 
to  insist  on  the  strict  performance  of  any  condition  for  which 
he  has  stipulated,  whether  others  would  consider  it  material  or 
not.  But  where  the  question  is  as  to  the  meaning  of  the  written 
language  in  which  he  has  contracted,  there  is  no  difference,  and 
there  ought  not  to  be  any,  between  the  contract  of  a  surety  and 
that  of  any  other  party.  In  this  respect  they  are  ordinary 
commercial  obligations  standing  upon  the  same  footing  as  other, 
contracts.  Gates  v.  McKee,  13  N.  Y.  232,  Bennett  v.  Draper, 
139  N.  Y.  266,  34  N.  B.  791.  When  the  terms  of  the  contract 
guarantied  have  been  changed,  or  the  contract,  as  finally  made, 
is  not  the  one  upon  which  the  surety  agreed  to  become  bound, 
he  will  be  released.  Page  v.  Krekey,  137  N.  Y.  307,  33  N.  E. 

8 


34  CONSTRUCTION  OF  CONTRACT. 

311.  But  in  this  case  there  is  no  claim  that  the  terms  of  the 
building  contract,  to  which  the  defendant's  bond  related,  have 
in  any  respect  been  changed  by  the  parties  to  it.  The  most 
that  is  claimed  is  that,  in  its  performance,  the  parties  have  so 
far  departed  from  its  terms  as  to  change  the  defendant's  con- 
dition, to  her  prejudice,  and  to  deprive  her  of  rights  and  bene- 
fits under  the  contract^  which,  otherwise,  she  would  be  entitled 
to  by  subrogation.  "Where  the  party  secured  does  some  act 
which  changes  the  position  of  the  surety  to  his  injury  or  pre- 
judice, the  latter  is  no  longer  bound.  Phelps  v.  Borland,  103 
N.  Y.  406,  9  N.  E.  307;  Bank  v.  Streeter,  106  N.  Y.  186,  12  N. 
E.  706 ;  Lynch  v.  Reynolds,  16  Johns.  40 ;  Brown  v.  Williams,  4 
Wend.  360 ;  Navigation  Co.  v.  Rolt,  6  C.  B.  (N.  S.)  550;  Calvert 
v.  Dock  Co.  2  Keen  638 ;  Warre  v.  Calvert,  7  Adol.  &  E.  143. 

The  learned  counsel  for  the  defendant  insists,  upon  his  con- 
struction of  the  contract,  that  the  plaintiff  paid  or  advanced  to 
the  contractors  a  larger  portion  of  the  contract  price  than  he 
was  required  to  by  the  contract,  and  that  it  was  so  paid  without 
any  certificate.  The  contention  rests  upon  the  defendant's  con- 
struction of  the  building  contract,  which,  in  substance,  is  that 
the  provision  for  "monthly  payments,  not  to  exceed  80  per  cent.  ^ 
of  the  estimated  value  of  the  work,  performed  on  the  building, " 
required  the  estimate  to  be  based  only  upon  the  work  when  actu- 
ally set  in  the  building,  whereas  it  was  in  fact  based  upon  the 
work  actually  done  under  or  in  pursuance  of  the  contract^ 
whether  the  granite  was  actually  placed  in  the  building  or  not. 
This  is  the  alleged  departure  from  the  terms  of  the  contract, 
which  constitutes  the  principal  ground  of  the  defense.  Before 
the  conclusion  of  the  learned  counsel  for  the  defendant  can  be 
adopted,  we  must  assent  to  the  premise  from  which  it  is  sought 
to  be  deduced,  and  that  requires  us  to  ascertain  and  determine 
the  true  meaning  and  intention  of  the  clause  of  the  contract 
above  quoted.  It  must  be  given  a  fair  and  reasonable  construc- 
tion, and  the  general  situation  will  throw  some  light  upon  the 
meaning  of  the  written  words.  It  appears 'that  the  granite  re- 
quired was  to  be  quarried  in  Nova  Scotia,  transported  from 
the  quarry  to  a  place  in  Connecticut,  where  it  was  to  be  dressed, 
and  then  transported  to  New  York,  and  set  in  the  building.  The 
work  involved  in  the  preparation  and  carriage  of  the  material 
was  by  far  the  most  expensive  part  of  the  contract,  and  it 
appears  that  the  contractors  had  no  means  to  meet  this  outlay, 


SMITH  v.  MOLLESON.  35 

except  the  monthly  payments,  so  that  if  they  could  realize 
nothing  until  the  stone  was  placed  in  the  building,  they  would 
be  practically  unable  to  perform  the  contract  at  all.  This  would 
be  an  unreasonable  construction,  and  would,  if  acted  upon, 
operate  so  oppressively  as  to  place  the  contractors  at  the  mercy 
of  the  owner,  a  view  that  is  always  to  be  avoided  when  possible. 
Russell  v.  Allerton,  108  N.  Y.  292,  15  N.  E.  391.  It  would 
deprive  them  of  all  the  right  to  monthly  payments  except  when 
and  to  the  extent  that  granite  had  actually  been  placed  in  the 
walls,  however  large  their  outlay  for  procuring  and  preparing 
the  material  may  have  been  during  the  month.  The  parties 
had  the  right  to  give  to  the  expression,  "work  performed  on  the 
building,"  a  broader  meaning,  which  could  very  properly  in- 
clude the  value  of  any  work  done  or  materials  procured  under 
the  contract  towards  its  erection,  although  the  granite  procured 
and  prepared  had  not  yet  been  placed.  Since  no  payments  were 
made  in  excess  of  80  per  cent,  of  the  value  of  the  work  per- 
formed in  setting  the  stone,  and  in  procuring  and  preparing 
them,  and  as  all  the  materials  so  procured  and  prepared  actually 
went  into  the  building,  no  advances  were  made  by  the  plaintiff 
to  the  contractors  beyond  the  fair  requirements  of  the  contract. 
It  is  said  that  it  cannot  be  supposed  that  the  plaintiff  contracted 
to  pay  any  part  of  the  contract  price  for  material  at  the  quarry, 
and  at  the  place  where  it  was  to  be  prepared,  or  for  the  work 
performed  in  preparing  the  same  for  use,  before  it  could  be 
known  that  it  would  ever  actually  reach  the  building.  But 
since  the  monthly  payments  were  stipulated  for  the  purpose  of 
enabling  the  contractors  to  prosecute  the  work,  and  as  the 
operation  of  placing  the  granite  in  place  when  prepared  was  the 
least  part  of  it,  we  do  not  think  that  this  view  would  be  un- 
reasonable or  improbable.  It  gave  to  the  plaintiff  reasonable 
assurance  and  protection  against  loss,  and  at  the  same  time  en- 
abled the  contractors  to  prosecute  the  work.  While  the  plaintiff 
is  described  in  the  contract  as  owner,  he  in  fact  had  no  interest 
whatever  in  the  building,  but  was  the  general  and  immediate 
contractor  from  the  city  for  the  erection  of  the  whole  building, 
and  the  defendant's  principals  were  his  subcontractors  for  a 
particular  and  specific  part  of  the  work,  namely,  the  granite 
work.  The  plaintiff  was  not  entitled  to  his  contract  price  from 
the  city  until  the  building  was  completed,  though  the  officers 
representing  it  had  discretion  to  make  advances.  Moreover,  by 


36  CONSTRUCTION  OF  CONTRACT. 

a  clause  in  the  contract,  the  plaintiff,  in  case  the  subcontractors 
abandoned  the  work  or  failed  to  perform,  could  terminate  the 
contract  and  go  on  with  the  work  himself,  and  in  that  event 
the  material  in  process  of  preparation  should  belong  to  him  for 
the  purpose  of  completing  the  work,  whether  such  material  was 
at  the  building,  at  the  quarry,  or  at  some  other  place.  So  that 
the  plaintiff,  in  stipulating  for  monthly  payments,  estimated 
upon  the  work  actually  performed,  whether  in  the  building  or 
not,  assumed  nothing  more  than  the  ordinary  and  usual  risks 
incident  to  all  contracts  of  that  character.  We  do  not  think, 
therefore,  that  the  meaning  of  the  contract  should  be  made  to 
depend  upon  the  use  of  the  words,  "on  the  building,"  when 
we  can  see,  from  the  situation  of  the  parties,  the  nature  of  the 
work,  and  other  provisions  of  the  instrument,  that  the  intention 
was  to  make  the  advances  as  the  work  progressed.  To  give  to 
it  the  other  construction  would,  in  practice,  disable  the  con- 
tractors at  the  very  outset  from  performance,  and  impose  upon 
the  defendant  a  liability,  inevitable  from  the  beginning,  and 
possibly  in  a  much  larger  amount  than  has  followed  the  con- 
struction adopted  by  the  parties  themselves. 

The  objection  that  the  payments  were  made  without  the  cer- 
tificate may  be  answered  in  the  same  way.  The  owner  could 
dispense  with  it  if  he  so  elected,  under  the  terms  of  the  con- 
tract, if  not  upon  general  principles,  and  since  the  payments 
made  without  it  were  not  greater  in  amount  than,  upon  the  true 
construction  of  the  contract,  they  should  have  been  if  it  had 
been  exacted,  the  omission  of  the  owner  to  insist  upon  it  did 
not  prejudice  the  surety.  We  are  not  dealing,  now,  with  any 
actual  change  in  the  terms  of  the  contract,  but  with  acts  or 
omissions  of  the  plaintiff  in  the  performance,  which,  in  order  to 
operate  to  release  the  surety,  must  bo  of  such  a  character  that 
it  can  be  said  that  her  position  was  changed  to  her  prejudice. 
It  should  also  be  observed  that  there  is  a  clause  in  the  contract 
the  material  part  of  which  reads  as  follows:  "Should  the  owner,"") 
at  any  time  during  the  progress  of  the  said  work,  request  any  : 
alterations,  deviations,  additions,  or  omissions  from  the  said 
contract,  he  shall  be  at  liberty  to  do  so,  and  the  same  shall  in  J 
no  way  affect  or  make  void  the  contract."  The  defendant, 
V  having,  by  reference,  in  effect  made  the  contract  a  part  of  the 
bond,  must  be  deemed  to  have  assented  to  this  provision,  and 
to  any  changes  or  deviations  in  performance  from  the  building 


SMITH  v.  MOLLESON.  37 

contract  made  under  it.  She  has,  in  effect,  guarantied  the  per- 
formance of  a  written  contract  between  other  parties,  which, 
by  its  terms,  permitted  the  parties  to  change  it  or  deviate  from 
it.  While  it  is  not  important  to  consider  the  real  scope  of  this 
clause,  since  we  prefer  to  dispose  of  the  questions  in  the  case 
upon  the  ground  that  there  was  no  material  departure  from  the 
contract,  when  properly  construed,  it  should  be  noted  that  she 
consented  in  advance  to  changes  of  some  character  which  are 
permitted  by  the  contract  in  language  quite  broad  and  com- 
prehensive. It  would  not  be  difficult  to  show  that  the  plaintiff 
might,  under  this  provision  at  least,  dispense  with  the  formality 
of  a  certificate  when  called  upon  by  the  contractors,  from  time 
to  time,  for  some  portion  of  the  contract  price,  without  dis- 
charging the  surety,  even  though  it  was  more  important  to  the 
defendant's  interest  and  protection  than  it  appears  to  be.  It 
is  manifest  that  the  provision  was  intended  for  the  benefit  of  the 
owner  alone,  and  he  could  waive  it  without  affecting  the  de- 
fendant's liability. 

The  contractors  having  failed  to  complete  the  work,  the  plain* 
tiff  gave  the  notice  required  by  the  contract  in  order  to  termi- 
nate it.  The  contract  provides  when  and  upon  what  contingen- 
cies the  plaintiff  could  terminate,  and  the  manner  of  proceeding 
for  that  purpose.  The  final  act  which  was  to  put  an  end  to  the 
contract  was  taking  possession  of  the  premises  by  the  plaintiff. 
The^notice  may  have  been  a  necessary  step,  or  formality  in  that 
direction,  but,  of  itself,  it  did  not  operate  to  bring  the  contract 
to  an  end.  It  was  clearly  within  the  power  of  the  plaintiff  to 
recall  it,  after  given,  if  not  upon  general  principles,  then  under 
the  permission  contained  in  the  contract.  It  appears  that  he 
was  induced,  subsequently,  to  allow  the  contractors  to  go  on, 
and  they  again  attempted  to  complete  the  work,  and  again 
failed.  It  is  said  that  the  loss  which  the  plaintiff  sustained,  and 
for  which  the  recovery  was  had,  occurred  under  this  permission, 
and  the  defendant's  counsel  treats  this  last  effort  at  performance 
as  a  new  contract  in  regard  to  which  the  surety  was  not  bound. 
It  was  manifestly  nothing  more  than  a  mere  waiver  or  recall 
of  the  notice  for  the  termination  of  the  contract,  and  the  work 
was  performed  and  payment  made,  not  upon  a  new  contract, 
but  upon  the  old  one,  up  to  the  time  that  the  final  notice  was 
given,  when  the  plaintiff  was  obliged  to  take  possession  of  the 
work.  The  case  was  very  fully  considered  in  the  court  below, 


38  CONSTRUCTION  OF  CONTRACT. 

and,  as  we  have  sufficiently  indicated  the  ground  of  our  con- 
currence in  the  decision  upon  points  that  are  controlling,  it  is 
unnecessary  to  notice  other  and  minor  questions  in  the  case. 
The  judgment  should  therefore  be  affirmed,  with  costs.  All 
concur. 

Judgment  affirmed. 


b.  The  obligation  of  a  surety  or  guarantor  is  strictissimi  juris 
and  cannot  be  extended  by  implication.  The  obligor  may 
rely  on  tJie  strict  letter  of  his  contract. 

SHREFFLER  v.  NADELHOFFER. 
133  El.  536;  25  N.  E.  Rep.  630;  23  Am.  St.  Rep.  626. 

Appeal  from  appellate  court,  second  district. 

BAILEY,  J.  Certain  qusstions  arising  upon  the  pleadings  are 
presented  by  counsel,  whichVwe  will  notice  first.  It  \$  said  that 
the  defendants'  eighth  plea  presented  a  complete  defense  to  the 
action,  and,  as  that  plea  wa^  unanswered,  judgment  should 
have  been  rendered  thereon  for  me  defendants,  p  appears  that 
the  defendants  went  to  trial  withoVt  objection  that  said  plea  was 
unanswered,  and  without  moving  for  any  judgment  thereon  for 
want  of  a  replication.  They  thereby,  waived^' the  necessity  of  a 
formal  issue.  As  we  said  in  Strohm  V,  Hayes,  70  111.  41,  it  is 
the  settled  doctrine  of  this  court  that,  proceeding  to  trial  where 
an  issue  is  not  made  up  on  one  of  the  jflteis,  such  issue  is  con- 
sidered as  waived,  or  the  irregularity  is\  cured  by  verdict. 
Furthermore,  said  eighth  plea  purpor/s  to  ansVer  only  the  third 
count  of  the  declaration,  and,  as  tiftat  count  was  dismissed  by 
the  plaintiff  prior  to  the  trial,  sucji  dismissal  carried  the  eighth 
plea  with  it,  and  that  plea  was  nro  longer  in  the  ca\e,  and  there 
was  no  occasion  for  answering/it. 

Again,  it  is  insisted  that  efach  of  the  several  counts  in  the 
declaration  is  insufficient  to^iow  a  cause  of  action,  and^bhat  the 
defendant's  motion  in  arrest  of  judgment  should  therefore\have 
been  sustained.  The  al/eged  defect  in  the  first,  second,  and 
fourth  counts  is  that,  except  as  to  the  first  breach  assigi 
the  first  count,  there /s  no  averment  that  the  decree  recited  in 
the  appeal-bond  has,4ver  been  affirmed  by  the  appellate  court. 

/ 


SHREFFLER  v.  NADELHOFFER.  39 

It  k  difficult  to  see  how,  as  the  record  now  stands,  the  defendants 
can  \avail  themselves  of  this  defect  in  the  second  count,  or  in 
the  second  breach  assigned  in  the  first  count.  Said  second  Breach 
in  thevfirst  count  and  said  second  count  were  both  demurred  to 
by  theXdefendants,  and,  their  demurrer  being  overruled,  they 
abandoned  it,  and  filed  various  pleas  in  bar.  The  only  assign- 
ment of  eVror  by  which  the  alleged  defect  in  the  first  and  second 
counts  are\  presented  for  consideration  here  is  ,the  one  which 
calls  in  question  the  decision  of  the  trial  'court*  overruling  the 
defendants'  motion  in  arrest  of  judgment,  and  the  settled  doc- 
trine of  this  c\mrt  is  that  where  a  defendanl/demurs  to  a  decla- 
ration, and,  afrer  his  demurrer  is  overruled;  pleads  over,  he  will 
be  precluded  frVm.  insisting  upon  a  motion  in  arrest  of  judg- 
ment for  insufficiency  in  the  declaratifm.  Quincy  Coal  Co.  v. 
Hood,  77  111.  68 ;  Express  Co.  v.  Pintfjfoey,  29  111.  392 ;  Indepen- 
dent Order,  etc.,  v.  Paine,  122  111.  625,  14  N.  E.  Rep.  42;  Rouse 
v.  County  of  Peoria\  2  Oilman,  90 ;  2  Tidd,  Pr.  918.  But  we 
think  the  fifth  count\  especially  after  verdict,  is  sufficient  to 
sustain  the  judgment  ;\  and  that  being  so,  the  court  properly 
overruled  the  motion  in  Vrresjr  of  judgment,  even  though  all  the 
other  counts  may  have  been/defective.  Section  57  of  the  prac- 
tice act  provides  that  "yGienever  an  entire  verdict .  shall  be 
given  on  several  counts, /he\  same  shall  not  be  set  aside  or  re- 
versed on  the  ground  9i  an\  defective  count,  if  one  or  more 
of  the  counts  of  the  ddclaratioia  be  sufficient  to  sustain  the  ver- 
dict." Rev.  St.  188ye.  110,  §  98.  See,  also,  Gebbie  v.  Mooney, 
121  111.  255,  12  N. /.  Rep.  472,  Vid  authorities  cited.  The  ob- 
jection urged  to  thB  other  counts  does  not  exist  in  the  fifth  count, 
as  that  count  contains  a  sufficient  averment  of  the  affirmance  by 
the  appellate  o6urt  of  the  decree  appealed  from.  But  it  is 
claimed  that  sifid  count  is  defective  in  failing  to  state  the  names 
of  the  partiesf  who  had  agreed  to  or  were\  about  to  purchase  said 
note,  and  thfe  sale  to  whom  was  defeated 'by  the  continuance  of 
the  injunction.  The  allegation  of  damaged  in  said  count  is,  in 
substance/ that  at  the  time  the  order  continuing  the  injunction 
was  madre,  the  note,  the  sale  and  transfer  Yf  which  was  re- 
strainecK  had  a  market  value  of  $10,000,  the  makers  and  guaran- 
tors of/said  note  then  being  men  of  great  weal\h  and  financial 
standing;  that,  but  for  the  injunction,  the  note  cVuld  have  been 
negojnated  and  sold  for  that  sum,  and  that  theVlaintiff  w.is 
offerted  that  sum  for  it  by  divers  responsible  parties^  and  would 


40  CONSTRUCTION  OF  CONTRACT. 

have  disposed  of  and  sold  it,  without  recourse,  for  that  sum,  if 
the  injunction  had  not  been  continue^  in  force ;  that  by  reason 
of  the '•continuance  of  the  injunetioia,  the  plaintiff  was  delayed 
and  hindered  in  making  such  disposition  of  the  note  for  the 
period  oft  10  months,  and  that  during  that  period  the  makers 
and  guarantors  of  the  note  became  financially  irresponsible, 
whereby  tnte  note  became  worthless.  Without  pausing  to  deter- 
mine whether,  in  this  case,  me  rules  of  good  pleading  required 
the  plaintiff  "to  state  the  n/mies  of  the  parties  who  had  offered 
to  purchase  s\id  note,  or/to  whom  he  would  have  sold  it  if  he 
had  not  been  prevented /rom  doing  so  by  the  continuance  of  the 
injunction,  the  fl^ase  is/ne  merely  of  a  defective  statement  of  a 
cause  of  action,  and  Jiot  one  where  no  cause  of  action  is  stated, 
and  the  defect  is  \herefore  one  which  is  cured  by  verdict.  The 
rule  on  this  subjeA  as  laid  down  by  Mr.  Gould  in  his  treatise 
on  Pleading,  is  afi  follows:  "Where  the  statement  of  the  plain- 
tiff's cause  of  action,  Vnd  that  only,  is  defective  or  inaccurate, 
the  defect  is  oared  by  \  general  verdict  in  his  favor ;  because, 
to  entitle  him  to  recover^  all  circumstances  necessary,  in  form 
or  substance^  to  complete  \  title  so  imperfectly  stated  must  be 
proved  at  me  trial,  and  it  i\  therefore  a  fair  presumption  that 
they  are  proved.  But  where'Uio  cause  of  action  is  stated,  the 
omission  As  not  cured  by  verdiflt.  For,  as  no  right  of  recovery 
was  necessary  to  be  proved,  or  dould  have  been  legally  proved 
under  such  a  declaration,  there  ca\  be  no  ground  for  presuming 
that  iy  was  proved  at  the  trial."  Wild,  PL  463.  The  allega- 
tions of  said  fifth  count  were  clearly  Xufficient  to  admit  proof  of 
the  names  of  the  parties  with  whom  this  plaintiff  had  negotiated 
the  sale  of  said  note,  and  to  whom  he  was  prevented  from  mak- 
ing such  sale  by  the  continuance  of  the  injunction,  and  it  will 
therefore  be  presumed,  as  was  the  fact,  that  such  proof  was 

made  at  the  trial^ ,___—-—-' 

But  tEe"question  to  which  our  attention  has  been  chiefly  di- 
rected, and  the  one  which  presents  the  greatest  difficulty,  is 
whether  any  breach  of  the  condition  of  the  bond  sued  on  is 
shown.  The  decision  of  that  question  must  turn  wholly  upon 
the  construction  to  be  placed  upon  the  language  of  the  condition. 
That  language  is  as  follows:  "Now,  if  the  said  Andrew  Dillman 
and  Edward  R.  Knowlton  shall  duly  prosecute  said  appeal,  and 
shall  moreover  pay  all  damages,  and  (damages  growing  out  of 
the  continuance  of  the  injunction  herein^  costs  of  suit  rendered 


SHREPFLER  v.  NADELHOFFER  41 

and  to  be  rendered  against  them,  the  said  Andrew  Dillman  and 
Edward  R.  Knowlton,  by  said  court  in  case  the  said  decree  shall 
be  affirmed  in  said  appellate  court,  then  the  obligation  to  be  null 
and  void;  otherwise  to  remain  in  full  force  and  virtue."  The 
judgment  of  the  appellate  court  simply  affirmed  the  decree  ap- 
pealed from,  and  awarded  the  appellee,  the  plaintiff  here,  his 
costs  in  that  court.  No  judgment  for  damages  was  rendered  by 
the  appellate  court  against  Dillman  and  Knowlton,  or  the  surviv- 
or of  them,  and  no  such  judgment  could  have  been  rendered,  as 
that  court  had  no  jurisdiction  or  authority,  on  affirming  the  de- 
cree, to  make  an  award,  to  the  party  entitled  thereto,  of  his  dam- 
ages growing  out  of  the  continuance  of  the  injunction.  It  is  not 
disputed  that  the  costs  adjudged  to  the  appellee  were  paid  prior 
to  the  commencement  of  the  suit  on  the  bond,  and  there  was 
therefore  no  breach  of  the  condition  of  the  bond  by  reason  of  the 
non-payment  of  said  costs.  The  defendants  contend  that,  by  a 
proper  construction  of  said  condition,  the  phrase,  "rendered 
and  to  be  rendered  against  them,  the  said  Andrew  Dillman  and 
Edward  R.  Knowlton,  by  said  court,"  should  be  held  to  apply 
to  and  qualify  the  words  "all  damages,  and  damages  growing 
out  of  the  continuance  of  the  injunction  herein,"  and  therefore 
that  no  damages  consequent  upon  the  taking  of  the  appeal,  or 
growing  out  of  the  continuance  of  the  injunction  are  within  the 
condition,  except  such  as  the  appellate  court  should  award  in 
its  judgment.  As  the  appellate  court  had  no  power  to  award 
damages  growing  out  of  the  continuance  of  the  injunction,  this 
construction  manifestly  renders  that  part  of  the  condition 
wholly  meaningless  and  nugatory. 

Two  of  the  defendants  being  sureties,  their  liabilities  must 
undoubtedly  be  determined  in  accordance  with  the  rules  of  law 
applicable  to  that  relation.  It  is  a  rule  universally  recognized 
by  the  courts,  that  a  surety  has  a  right  to  stand  upon  the  strict 
terms  of  his  obligations,  when  such  terms  are  ascertained.  As 
said  by  Mr.  Justice  STORY  in  Miller  v.  Stewart,  9  Wheat.  681 : 
"Nothing  can  be  clearer,  both  upon  principle  and  authority, 
than  the  doctrine  that  the  liability  of  a  surety  is  not  to  be  ex- 
tended by  implication  beyond  the  terms  of  the  contract.  To  the 
extent,  and  in  the  manner,  and  under  the  circumstances  pointed 
out  in  his  obligation,  he  is  bound,  and  no  further.  It  is  not 
sufficient  that  he  may  sustain  no  injury  by  a  change  of  the 
contract,  or  that  it  may  even  be  for  his  benefit.  He  has  a  right 


42  CONSTRUCTION  OF  CONTRACT. 

to  stand  upon  the  very  terms  of  his  contract ;  and  if  he  does  not 
assent  to  any  variation  of  it,  and  a  variation  is  made,  it  is  fatal. 
And  courts  of  equity,  as  well  as  law,  have  been  in  the  constant 
habit  of  scanning  the  contracts  of  sureties  with  considerable 
strictness."  The  rule  thus  laid  down  by  Mr.  Justice  Story  has 
been  repeated  and  adopted  by  this  court  in  numerous  decisions. 
Field  v.  Rawlings,  1  Oilman,  581 ;  Waters  v.  Simpson,  2  Oilman, 
570;  Reynolds  v.  Hall,  1  Scam.  35;  People  v.  Moon,  3  Scam. 
125 ;  Governor  v.  Ridgeway,  12  111.  14 ;  Ryan  v.  Trustees,  14  111. 
20;  Railroad  Co.  v.  Higgins,  58  111.  128;  Stull  v.  Hance,  62  111. 
52;  People  v.  Tornpkins,  74  111.  482;  Cooper  v.  People,  85  111. 
417;  Mix  v.  Singleton,  86  111.  194;  Phillips  v.  Manufacturing 
Co.,  88  111.  305;  Dodgson  v.  Henderson,  113  111.  360;  Trustees  v. 
Sheik,  119  111.  579,  8  N.  E.  Rep.  189 ;  Insurance  Co.  v.  Johnson, 
120  111.  622,  12  N.  E.  Rep.  205;  Vinyard  v.  Barnes,  124  111.  346, 
16  N.  E.  Rep.  254.  In  many  of  these  cases  we  have  said  that 
the  contract  of  a  surety  is  to  be  strictly  construed,  and  that 
his  liability  is  not  to  be  extended  by  implication,  and  such  has 
long  been  the  settled  law  in  this  state.  It  is  not  meant  by  this 
rule,  however,  that  the  courts,  in  endeavoring  to  ascertain  the 
precise  terms  of  the  contract  actually  made  by  a  surety,  may 
not  resort  to  the  same  aids,  and  invoke  the  same  canons  of 
interpretation,  which  apply  in  case  of  other  contracts.  Thus, 
in  Stull  v.  Hance,  62  111.  52,  the  rule  that  in  construing  con- 
tracts and  written  agreements,  the  whole  context  should  be 
considered,  and  the  intention  of  the  parties  ascertained  from 
it,  was  applied  to  the  interpretation  of  the  contract  of  a  surety, 
and  in  Mix  v.  Singleton,  86  111.  194,  where  a  similar  contract 
was  under  consideration,  the  rule  that  the  words  used  should 
be  construed  as  ordinarily  understood  was  applied.  Indeed, 
any  other  mode  of  interpretation  would  lead  to  the  absurd  re- 
sult of  giving  to  the  same  set  of  words  in  a  contract  one  force 
and  meaning  when  the  principal  is  defendant,  and  a  different 
force  and  meaning  when  the  suit  happens  to  be  brought  against 
the  surety  or  guarantor.  The  rule  of  strict  construction,  as 
applied  to  the  contract  of  sureties  and  guarantors,  in  no  way 
interferes  with  the  use  of  the  ordinary  tests  by  which  the  actual 
meaning  and  intention  of  contracting  parties  are  ordinarily 
determined,  but  merely  limits  their  liability  strictly  to  the  terms 
of  their  contract,  when  those  terms  are  ascertained,  and  forbids 
any  extension  of  such  liability  by  implication  beyond  the  strict 


SHREFFLER  v.  NADELHOFFER.  43 

letter  of  those  terms.  Various  decisions  in  other  states  may  be 
cited  in  support  of  this  position.  Thus,  in  Locke  v.  McVean, 
33  Mich.  473,  the  court,  after  reviewing  many  English  and 
American  decisions,  says:  "The  view  now  generally  received 
appears  to  be  that,  for  the  purpose  of  finding  out  what  the  con- 
tract is,  the  same  course  is  to  be  pursued  that  the  law  authorizes 
to  ascertain  what  the  parties  have  agreed  upon  in  the  case  of 
other  mercantile  contracts2  but,  when  an  understanding  is  once 
reached  of  the  true  agreement,  the  rules  and  principles  which 
pertain  to  the  rights  and  duties  of  principal  and  surety  ap- 
ply." In  Kastner  v.  Winstanley,  20  U.  C.  C.  P.  101,  the  court, 
after  reviewing  various  English  authorities,  says:  "The  rule 
of  construction,  then,  of  a  contract  of  this  description  is  to 
construe  it  as  all  other  contracts,  not  giving  a  strict  meaning 
to  the  words  used  against  the  party  using  them,  nor  yet  as 
against  the  party  in  whose  favor  they  are  used,  but  to  collect 
the  real  intention  of  the  parties  from  the  terms  used  in  the 
contract,  taking  them  in  their  plain,  ordinary,  and  popular 
sense,  unless  by  the  known  usage  of  the  trade  they  have  ac- 
quired a  peculiar  sense,  and  from  the  surrounding  circum- 
stances." In  Hamilton  v.  Van  Rensselaer,  43  N.  Y.  244,  Chief 
Justice  CHURCH,  in  discussing  the  proper  interpretation  to  be 
put  upon  a  contract  of  guaranty,  says:  "In  ascertaining  the 
meaning  of  the  language 


^__ 

are  applicable  to  contracts  of  suretyship  as  to  other  contracts. 
When  the  true  signification  of  the  contract  is  ascertained,  the 
surety  or  guarantor  has  a  right  to  insist  that  his  liability  shall 
not  be  extended  beyond  its  precise  terms."  In  Belloni  v.  Free- 
born,  63  N.  Y.  383,  the  court,  in  discussing  the  same  subject,  say: 
"There  is  no  rule  exclusively  applicable  to  instruments  of 
suretyship,  and  requiring  them  to  be  in  all  cases  interpreted 
with  stringency  and  critical  acumen  in  favor  of  the  surety  and 
against  the  creditor,  and  all  ambiguities  to  be  resolved  to  the 
advantage  of  the  promisor,  and  every  liability  excluded  from 
the  operation  of  the  instrument  that  can,  by  a  strained  and 
refined  construction,  be  deemed  outside  of  the  agreement.  In 
guaranties,  letters  of  credit,  and  other  obligations  of  sureties, 
the  terms  used  and  the  language  employed  are  to  luive  a  reas- 
onable interpretation,  according  to  the  intent  of  the  parties 
as  dis'-lc.s'-d  by  the  instrument,  read  in  the  light  of  the.  sur- 
rounding circumstances,  and  the  purposes  for  which  it  was 


44  CONSTRUCTION  OF  CONTRACT. 

made.  If  the  terms  are  ambiguous,  the  ambiguity  may  be  ex- 
plained by  reference  to  the  circumstances  surrounding  the  par- 
ties, and  by  such  aids  as  are  allowable  in  other  cases.  *  * 
*  *  The  surety  is  not  liable  on  an  implied  engagement,  and 
his  obligation  cannot  be  extended,  by  construction  or  implica- 
tion, beyond  the  precise  terms  of  the  instrument  by  which  he 
has  become  surety.  But  in  such  instruments  the  meaning  of 
the  written  language  is  to  be  ascertained  in  the  same  manner 
and  by  the  same  rules  as  in  other  instruments;  and  when  the 
meaning  is  ascertained,  effect  is  to  be  given  to  it."  See,  also, 
Gates  v.  McKee,  13  N.  Y.  232;  Crist  v.  Burlingame,  62  Barb. 
351;  Brandt,  Sur.  105  et  seq.  It  must  be  conceded  that  the 
condition  of  the  bond  in  question,  when  read  by  itself,  and 
without  reference  to  surrounding  circumstances,  is  of  doubtful 
meaning.  The  draughtsman,  in  preparing  the  bond,  instead 
of  drawing  two  bonds,  one  to  serve  as  an  appeal-bond,  and  the 
other  as  an  injunction  bond,  took  a  blank  appeal-bond,  and  en- 
deavored, by  inserting  a  clause  providing  for  the  payment  of 
the  damages  growing  out  of  the  continuance  of  the  injunction, 
to  make  it  serve  the  purposes  of  both  an  appeal  and  an  injunc- 
tion bond.  The  place  in  which  the  last-named  clause  is  in- 
serted, and  its  relation  to  the  other  words  of  the  condition  are 
such  as  to  render  it  uncertain,  if  we  consider  merely  what  ap- 
pears upon  the  face  of  the  instrument,  whether  the  undertaking 
is  to  pay  all  damages  growing  out  of  the  continuance  of  the 
injunction,  in  case  the  decree  is  affirmed  by  the  appellate  court, 
or  merely  to  pay  all  such  damages  arising  from  that  cause  as 
should  be  awarded  against  the  obligors  by  the  judgment  of 
that  court.  Either  reading  may  be  adopted  without  doing 
violence  to  any  of  the  language  of  the  condition.  But  when 
we  view  the  condition  in  the  light  of  surrounding  circumstances 
there  can  be  no  reasonable  doubt  as  to  which  of  these  mean- 
ings was  within  the  purpose  and  intent  of  the  parties.  Of 
these  circumstances  we  may  notice,  first,  the  fact  that  the  ap- 
pellate  court  had  no  jurisdiction,  whatever  might  be  the  out- 
come of  the  appeal,  to  render  judgment  against  the  obligors 
for  the  damages  resulting  from  the  continuance  of  the  injunc- 
tion. We  must  attribute  to  the  obligors  the  intention  to  enter 
into  an  obligation,  every  provision  of  which  would  be  valid, 
but  if  the  condition  is  interpreted  as  importing  an  obligation 
to  pay  only  such  damages  as  should  be  adjudged  by  the  appel- 


SHREFFLER  v.  NADELHOFFER.  45 

late  court,  it  becomes,  so  far  as  that  part  of  it  is  concerned, 
merely  senseless  and  nugatory. 

Then  again,  the  circumstances  under  which  the  appeal  was 
taken  anoTEe"  bond  given  point  to  the  conclusion  that  it  was  the 
intention  of  the  obligors  to  secure  to  the  obligee  the  payment 
of  the  damages  growing  out  of  the  continuance  of  the  injunc- 
tion in  case  the  decree  should  be  affirmed.  The  circuit  court 
had  rendered  its  decree  dismissing  the  bill  for  want  of  equity 
and  dissolving  the  injunction.  The  complainants  desired  to  re- 
move the  record  to  the  appellate  court  for  review,  and  to  have 
the  injunction  continued  in  force  until  the  final  decision  of  that 
court.  To  obtain  such  continuance  of  an  injunction  a  party 
is  ordinarily  required  to  execute  to  the  opposite  party  a  bond 
indemnifying  him  against  all  damages  which  may  thereby  re- 
sult to  him.  This  we  think  the  obligors  wished  and  intended  and  ^. 
undertook  to  do;  and  if  the  bond  is  equally  susceptible  of  two 
interpretations,  one  of  which  is  consistent  with  and  accomplishes 
that  intention,  as  we  think  it  is,  it  is  very  clear  that  such  in-  *** 
terpretation  must  be  deemed  to  be  the  true  one.  The  undertak- 
ing to  pay  the  appellee  his  damages  upon  the  sole  condition  that 
the  decree  should  be  affirmed  by  the  appellate  court  must  be 
held  to  be  within  the  strict  terms  of  the  bond  as  the  obligors 
made  it,  and  not  an  obligation  imported  into  it  by  implication  or 
construction.  One  of  the  assignments  of  error,  which  we  have 
not  noticed  until  now,  calls  in  question  the  decision  of  the  cir- 
cuit court  in  sustaining  a  ^demurrer  to  the  defendants'  second, 
tenth,  twelfth,  anol  eighteenth  pleas.  The  second  plea /s  based 
upon  that  interpretatioi/of  the  bond  in  questionWhichr  we  have 
shown  is  not  the  trVe/one,  and  the  demurrer  to  \tywas  there- 
fore properly  sustained.  The  facts  alleged  in  thYtenth  and 
twelfth  pleas,  so  far  as\hey  seem  to  be  material,  are/4ubstantially 
alleged  in  otherypleas,  and  the  defendants  had  the  advantage  of 
the  defenses  inereby  presented.  The  eighteenth  j>lea  am?ges 
facts  which/seem  to  us  to  be  wholly  immaterial,  and  it  was 
properly  h&d  insufficient  on  demurrer.  "We  are  of  the  opinion 
that  the  judgment  of  the  appellate  court  should  be  affirmed, 
and  an  order  to  that  effect  will  accordingly  be  entered. 


46  CONSTRUCTION  OF  CONTRACT. 

EVANSVILLE  NATIONAL  BANK  v.  KAUFMANN. 
93  N.  Y.  273,;  45  Am.  Rep.  204. 

Action  on  drafts.  The  opinion  states  the  case.  The  de- 
fendant had  judgment  at  trial,  which  was  reversed  by  the  Gen- 
eral Term. 

RUGEE,  Ch.  J.  Guaranties  are  distinguished  in  the  law  as 
being  either  general  or  special.  Special  guaranties  being  those 
which  operate  in  favor  oTthe  particular  persons  only  to  whom 
they  are  addressed,  while  general  guaranties  are  open  for  ac- 
ceptance by  the  public  generally.  They  are  sometimes  further 
classified  into  those  limited  to  a  single  transaction  and  those 
embracing  continuous  or  successive  dealings.  Gates  v.  McKee, 
13  N.  Y.  232 ;  Church  v.  Brown,  21  id.  329. 

The  liability  of  the  defendants  in  this  case  depends  upon  the 
solution  of  the  question  to  which  of  these  classes  the  guaranty 
in  suit  belongs.  If  it  be  regarded  as  a  general  guaranty,  there 
is  no  just  defense  to  this  action.  If  however  it  is  a  mere  special 
guaranty,  although  continuous  in  its  character,  other  questions 
will  arise  for  consideration.  Many  of  the  earlier  cases  arising 
upon  guaranties,  both  here  and  in  England,  were  largely  con- 
trolled by  the  question  of  their  negotiability;  and  it  was  uni- 
formly held  that  no  action  would  lie  at  the  suit  of  an  assignee 
upon  a  special  guaranty  because  no  privity  existed  between 
such  assignee  and  the  guarantor.  Bobbins  v.  Bingham,  4  Johns. 
476;  Walsh  v.  Bailie,  10  id.  180;  Chitty  on  Bills,  273,  308  (ed. 
1839);  Newcomb  v.  Clark,  1  Denio,  226;  Birckhead  v.  Brown, 
5  Hill,  634.  This  obstacle  was  removed  in  this  State  by  the 
Code  of  Procedure,  which  authorized  any  party  acquiring  an 
interest  in  a  guaranty  to  bring  his  action  and  recover  thereon, 
provided  a  cause  of  action  previously  existed  upon  the  con- 
tract in  favor  of  his  assignor.  The  real  party  in  interest  in 
such  contracts  is  now  entitled  to  maintain  an  action  for  dam- 
ages arising  from  a  breach  of  such  contract  in  his  own  name, 
although  he  was  not  originally  privy  to  it. 

In  other  words  the  same  effect  is  now  given  to  an  equitable 
that  formerly  pertained  to  a  legal  assignment,  and  they  are 
now  both  equally  cognizable  in  a  court  of  law. 

It  follows  that  Bingham  Brothers  could  assign  to  the  plain- 
tiff, and  the  latter  recover  upon  any  cause  of  action  accruing 


EVANSVILLE  BANK  v.  KAUFMANN.          47 

to  them  under  the  letter  of  credit  in  question  existing  against 
the  defendants  at  the  time  of  the  discount  of  the  drafts  in 
suit. 

The  true  distinction  between  general  and  special  guaranties, 
as  contained  in  letters  of  credit,  is  that  upon  the  faith  of  a 
general  guaranty  any  person  is  entitled  to  advance  money,  or 
incur  liability,  upon  complying  with  its  terms,  and  can  recover 
thereon  the  same  as  though  specially  named  therein.  Union 
Bank  of  Louisiana  v.  Coster,  3  N.  Y.  203. 

In  the  case  of  a  special  guaranty  however  the  liberty  of  ac- 
cepting its  terms  is  confined  to  the  persons  to  whom  it  is  ad- 
dressed, and  no  cause  of  action  can  arise  thereon  except  by  their 
action  in  complying  with  its  conditions. 

Such  a  guaranty  contemplates  a  trust  in  the  person  of  the 
promisee  and  from  its  very  nature  is  not  assignable  until  a 
right  of  action  has  arisen  thereon,  which  may,  like  any  other 
cause  of  action  arising  upon  contract,  be  then  assigned. 

The  authority  of  the  cases  holding  that  no  privity  exists  be- 
tween the  assignee  of  a  guaranty  and  the  guarantor,  sufficient 
to  enable  the  former  to  maintain  an  action  thereon,  has  thus 
ceased  by  force  of  the  provisions  of  the  Code. 

Though  this  be  so,  the  common-law  rule  applies  to  contracts 
of  guaranty  as  well  as  to  other  contracts,  that  a  consideration 
is  necessary  to  render  them  valid;  and  that  unless  such  con- 
sideration be  acknowledged  by  the  contract  itself,  it  is  still 
necessary  to  prove  one  in  order  to  recover  thereon.  Leon- 
ard v.  Vredenburgh,  8  Johns.  29;  5  Am.  Dec.  317;  Bailey  v. 
Freeman,  4  id.  280;  6  Am.  Dec.  371;  Brandt  on  Suretyship,  7. 

It  was  formerly  held  that  such  contracts  were  void  by  the 
statute  of  frauds  unless  their  consideration  was  also  expressed 
upon  the  face  of  the  instrument  itself.  Union  Bank  v.  Coster 
Ex'r,  3  N.  Y.  211;  Newcomb  v.  Clark,  1  Denio,  226. 

But  this  rule  was  modified  by  other  cases  holding  that  where 
the  nature  of  the  consideration  was  fairly  inferable  from  the 
contract  sued  upon,  or  was  contained  in  a  written  instrument 
contemporaneously  executed  and  forming  a  part  of  the  transac- 
tion, it  would  satisfy  the  requirement  of  the  statute.  Gates 
v.  McKee,  supra;  Church  v.  Brown,  21  N.  Y.  315;  Douglas  v. 
Howland,  24  Wend.  35 ;  Leonard  v.  Vredenburgh,  supra;  Kogers 
V.  Kneeland,  10  Wend.  218. 

The  cases  of  Brewster  v.  Silence,  8  N.  Y.  207,  and  Draper  v. 


48  CONSTRUCTION  OF  CONTRACT. 

Snow,  20  id.  331,  holding  a  contrary  doctrine,  have  been  much 
shaken,  as  authority  upon  this  question,  by  the  later  cases  above 
cited. 

The  statute  of  frauds  was  amended  in  this  State  by  chapter 
464  of  the  Laws  of  1863,  omitting  in  its  re-enactment  the  pro- 
vision requiring  the  consideration  of  a  promise  to  answer  for 
the  debt,  default  or  miscarriage  of  another,  to  be  expressed  in 
the  writing  containing  such  promise. 

The  effect  of  this  amendment  was  to  dispense  with  the  neces- 
sity of  such  statement  in  the  instrument  itself  (Speyers  v.  Lam- 
bert, 6  Abb.  Pr.  (N.  S.)  309),  but  it  left  it  still  indispensable 
that  a  consideration  in  fact  for  the  promise  should  exist  in 
order  to  entitle  the  promisee  to  recover  thereon.  Brandt  on 
Suretyship,  90. 

Regarding  this  case  therefore  as  unaffected  by  the  questions 
referred  to,  its  solution  seems  to  depend  upon  the  answer  to 
be  made  to  these  two  propositions:  First,  as  to  whether  the 
guaranty  in  question  is  general  or  special;  and  second,  if  it 
be  found  to  be  a  special  guaranty,  whether  any  good  cause  of 
action  arose  thereon  in  favor  of  the  persons  to  whom  it  was 
addressed,  which  has  been  assigned  to  the  plaintiff  in  this 
action.  Besides  a  consideration,  it  is  essential  that  a  contract 
of  this  kind  should  be  between  proper  parties,  viz.,  a  promisor 
or  guarantor;  a  principal  and  a  promisee;  and  it  is  just  as 
essential  that  such  contracts  should  describe  or  refer  to  these 
parties  so  as  to  identify  them,  either  individually  or  as  a 
class. 

It  is  always  competent  for  a  guarantor  to  limit  his  liability, 
either  as  to  time,  amount  or  parties,  by  the  terms  of  his  con- 
tract, and  if  any  such  limitation  be  disregarded  by  the  party 
who  claims  under  it  the  guarantor  is  not  bound.  It  follows 
that  no  one  can  accept  its  propositions  or  acquire  any  ad- 
vantage therefrom  unless  he  is  expressly  referred  to  or  neces- 
sarily embraced  in  the  description  of  the  persons  to  whom  the 
offer  of  guaranty  is  addressed.  Bobbins  v.  Bingham,  supra; 
Union  Bank  v.  Coster,  supra;  Church  v.  Brown,  supra;  Walsh 
v.  Bailie,  supra;  Dodge  v.  Lean,  13  Johns.  508;  Brandt  on 
Suretyship,  88 ;  Bailey  v.  Ogden,  3  Johns.  399,  3  Am.  Dec.  509. 

In  the  case  of  a  special  guaranty  the  consideration  necessary 
to  support  the  promise  may  be  either  one  furnished  by  the 
principal  to  the  guarantor,  or  by  the  promisee  to  either  the 


EVANSVILLE  BANK  v.  KAUFMANN.          49 

principal  or  some  third  person,  according  to  the  terms  of  the 
guaranty. 

A  general  letter  of  credit  is  addressed  to  and  invites  people 
generally  to  advance  money,  give  credit,  or  sell  property  in 
reliance  upon  it,  and  when  this  is  done  the  contract  is  complete, 
and  the  acceptor  becomes  a  party  to  it  and  may  enforce  it  for 
his  own  benefit. 

In  such  cases  the  promisee  has,  upon  the  request  of  the  guar- 
antor, furnished  the  consideration  contemplated  by  the  guar- 
anty and  brought  himself  within  its  terms  and  the  requirements 
of  law.  Union  Bank  v.  Coster,  supra;  Church  v.  Brown,  supra; 
Birckhead  v.  Brown,  supra. 

To  come  to  the  case  in  hand  it  will  be  found  that  the  guaranty 
neither  in  its  address  nor  contents  refers  either  directly  or  in- 
directly to  any  other  persons  than  the  immediate  parties  thereto. 
These  parties  are  Kaufmann  &  Blun,  the  guarantors,  Feigelstock, 
the  principal,  and  Bingham  Bros.,  the  promisees. 

It  has  been  said  that  the  allusion  in  the  letter  to  the  word 
"drafts"  implies  the  negotiation  of  these  instruments  to  third 
persons.  This  idea  we  think  is  not  necessarily  or  generally 
conveyed  by  this  expression. 

Drafts,  as  used  in  the  collection  of  debts,  are  not  usually  ne- 
gotiable. The  office  of  a  draft  is  to  collect  for  the  drawer  from 
the  drawee,  residing  in  another  place,  money  to  which  the 
former  may  be  entitled,  either  on  account  of  balances  due  or 
advances  upon  consignments,  and  although  they  may  sometimes 
be  used  for  raising  money,  that  is  not  the  necessary  or  or- 
dinary purpose  for  which  they  are  employed. 

"We  might  therefore  well  hold  that  no  such  doubt  or  un- 
certainty appears  upon  the  face  of  this  guaranty  as  entitles 
the  plaintiff  to  furnish  extrinsic  evidence  to  determine  its 
signification. 

The  plaintiff  however  claims  the  right  to  resort  to  such  evi- 
dence to  show  that  the  defendants  intended,  or  that  it  had  the 
right  to  infer  that  their  guaranty  was  intended  for  such  per- 
sons as  should  advance  money  upon  Bingham  Bros.'  drafts 
before  their  acceptance  by  Feigelstock. 

Some  controversy  appears  by  the  cases  to  have  formerly  ex- 
isted in  respect  to  the  rule  governing  the  courts  in  the  con- 
struction of  guaranties,  whether  that  should  apply  which 
entitled  a  surety  to  have  his  contract  strictly  construed,  or 


50  CONSTRUCTION  OF  CONTRACT. 

that  imposing  upon  a  party  using  the  language  the  liability 
of  having  it  interpreted  most  strongly  against  him,  but  the 
weight  of  authority  now  seems  to  favor  that  construction  which 
shall  accord  with  the  apparent  intention  of  the  parties,  in  con- 
formity with  the  rule  the  construction  of  contracts  generally. 
Eindge  v.  Judson,  24  N.  Y.  70;  Gates  v.  McKee,  supra;  Dobbin 
v.  Bradley,  17  Wend.  422. 

But  when  the  meaning  of  the  language  used  in  a  guaranty 
is  ascertained,  the  surety  is  entitled  to  the  application  of  the 
strict  rule  of  construction  and  cannot  be  held  beyond  the  pre- 
cise terms  of  his  contract.  Gates  v.  McKee,  13  N.  Y.  232; 
People  v.  Chalmers,  60  id.  158;  Kingsbury  v.  "Westfall,  61  id. 
356. 

When  therefore  the  language  of  a  guaranty  is  ambiguous  and 
does  not  furnish  conclusive  evidence  of  its  meaning,  we  are 
entitled  to  look  at  all  of  the  circumstances  of  the  case  and 
arrive  at  the  intention  of  the  parties  from  these  sources  of  in- 
formation. Agawam  Bank  v.  Strever,  18  N.  Y.  502;  Brandt  on 
Suretyship,  106;  Walrath  v.  Thompson,  4  Hill,  200;  Fell's  Law 
of  Guaranty,  43;  Gates  v.  McKee,  supra;  Keate  v.  Temple,  1 
B.  &  P.  158;  Springsteen  v.  Samson,  32  N.  Y.  703;  Karmuller 
v.  Krotz,  18  Iowa,  352 ;  Hasbrook  v.  Paddock,  1  Barb.  637. 

Assuming  therefore  that  there  is  an  ambiguity  in  this  letter 
requiring  explanation,  we  will  examine  the  case  in  the  light  of 
the  general  principles  which  have  been  stated. 

The  action  is  based  upon  two  drafts  made  by  Bingham  Bros., 
of  Evansville,  Indiana,  upon  A.  Feigelstock,  of  New  York,  and 
payable  respectively  one  for  $5,000  sixty  days  after  date,  and 
one  for  $2^500  fifteen  days  after  sight.  These  drafts  were  dis- 
counted by  the  plaintiff  at  its  bank  in  Evansville,  at  their  re- 
spective dates,  and  the  proceeds  duly  paid  to  Bingham  JBros. 
Each  of  them  was  afterwards  duly  protested  for  non-acceptance 
and  non-payment  by  Feigelstock.  These  drafts  belonged  to  a 
series  of  similar  character  discounted  by  the  plaintiff  for  Bing- 
ham Bros.,  and  were  the  only  ones  remaining  unpaid  by  Feigel- 
stock at  their  maturity. 

At  the  commencement  of  this  course  of  business  Bingham 
Bros,  produced  to  and  left  with  the  plaintiff  the  letter  of  credit 
upon  which  this  action  is  founded,  and  it  was  delivered  as  se- 
curity for  the  amount  intended  to  be  loaned  upon  such  drafts. 

No  bills  of  lading  or  consignments  of  property  by  Bingham 


EVANSVILLE  BANK  v.  KAUFMANN.          51 

Bros,  to  Feigelstock  accompanied  the  drafts,  and  that  for  $5,000 
appeared  upon  its  face  to  be  an  accommodation  draft.  No 
notice  of  these  transactions  was  ever  given  to  the  defendants, 
and  it  did  not  appear  that  they  had  any  knowledge  of  the 
several  discounts.  The  letter  expressing  the  guaranty  upon 
which  the  action  is  brought  is  as  follows: 

"New  York,  December  29,  1874. 
"Messrs.  Bingham  Bros.,  Evansville,  Ind. : 

"Dear  Sirs — Any  draf  ta  that  you  may  draw  on  Mr.  A.  Feigel- 
stock, of  our  city,  we  guarantee  to  be  paid  ajjmaturity. 

"Yours  truly, 

"KAUFMANN  &  BLUN." 

"While  the  letter  will  be  seen  to  be  couched  in  broad  and  in- 
definite terms  with  respect  to  the  number,  amount  and  character 
of  the  drafts  referred  to,  Bingham  Bros,  alone  are  addressed. 
However  general  may  be  the  description  of  the  subjects  guar- 
anteed the  number  of  persons  authorized  to  accept  its  terms  is 
not  thereby  enlarged. 

The  letter  is  subject  to  all  of  the  limitations  expressed  therein, 
and  also  to  such  as  may  fairly  be  implied  from  its  language,  and 
the  natural  course  of  business  transactions  between  its  several 
parties.  General  letters  of  credit  are,  from  necessity,  delivered 
to  the  persons  who  expect  to  profit  by  their  aid,  and  are  in- 
tended to  be  exhibited  by  them  wherever  and  whenever  assist- 
ance is  required.  The  fact  of  the  possession  of  a  letter  of  credit 
by  a  person  from  whom  credit  is  sought  militates  against  its 
generality.  The  absence  in  this  letter  of  any  assurance  that  the  V 
drafts  specified  should  be  accepted  on  presentation  seems  to 
imply  that  sight  drafts  alone  were  contemplated  by  the  parties. 

So  too  the  absence  of  any  reference  to  the  consideration  of 
this  guaranty  is  significant,  and  would  seem  to  suggest  to  a 
prudent  man  the  propriety  of  an  inquiry  into,  the  situation  of 
the  parties,  and  the  nature  of  the  business  in  which  the 
guaranty  was  to  be  used  before  advancing  largely  upon  the 
faith  thereof.  Such  an  investigation  would  have  enabled  the 
plaintiff  to  see  that  it  was  not  justified  in  drawing  the  inference 
which  it  claims  to  have  done  from  the  language  of  this  instru- 
ment. 

Bingham  Bros,  resided  and  were  manufacturers  of  spirits  at 
Evansville,  in  the  State  of  Indiana,  remote  from  the  guarantors 


52  CONSTRUCTION  OF  CONTRACT. 

and  the  drawee  of  the  drafts.  Feigelstock  was  a  merchant  re- 
siding in  New  York  engaged  in  the  business  of  receiving  and 
selling  on  commission  goods  consigned  to  him  by  third  parties. 

The  plaintiff  was  a  bank  doing  business  in  the  State  of  In- 
diana, and  the  defendants  were  merchants  in  the  city  of  New 
York.  At  the  date  of  the  guaranty  these  various  parties  were 
strangers  to  each  other,  except  that  the  plaintiff  and  Bingham 
Bros,  resided  at  the  same  place,  and  had  previously  had  busi- 
ness transactions  together.  There  is  no  evidence  as  to  the  re- 
lations existing  between  the  defendants  and  Feigelstock,  but 
it  is  claimed  in  the  answer,  and  was  offered  to  be  proved  on 
the  trial,  that  they  were  strangers  to  each  other,  and  that  the 
guaranty  was  given  by  the  defendants  as  a  favor  to  a  person 
who  was  in  their  employ,  and  who  was  a  relative  of  Feigel- 
stock. 

There  would  seem  to  be  no  motive  reasonably  inferable  from 
such  a  situation  and  relationship  sufficiently  powerful  to  in- 
duce the  defendants  to  lend  their  unlimited  credit  for  the 
benefit  and  advantage  of  Bingham  Bros,  alone.  The  conten- 
tion of  the  plaintiff  leads  to  the  proposition  that  it  had  a  right 
to  infer  that  Bingham  Bros,  were  authorized  by  the  defendants 
to  go  to  any  place  and  with  any  person  contract  to  bind  the 
defendants  for  unlimited  sums.  Under  such  a  construction  the 
'defendants  could  never  revoke  this  authority,  for  it  would  be 
practically  impossible  to  reach  by  notice  all  of  the  persons  who 
might  be  applied  to  for  advances  upon  this  letter. 

To  uphold  this  judgment  we  are  required  to  hold  that  the 
plaintiff  had  the  right  to  infer  from  the  language  of  the  letter, 
and  the  circumstances  of  the  case,  that  the  defendants,  without 
any  apparent  motive  for  so  doing,  had  clothed  Bingham  Bros, 
with  irrevocable  authority  to  use  their  names  in  borrowing 
money  at  remote  and  multiplied  points,  for  unlimited  amounts 
and  unrestricted  periods  of  credit. 

Certainly,  if  the  plaintiff  believed  this,  it  was  not  justified  in 
placing  much  reliance  upon  the  continued  responsibility  of  per- 
sons transacting  business  in  so  reckless  a  manner. 

A  transaction  of  such  a  character  would  be  so  improvident 
and  unnatural  that  to  establish  it  in  any  case  should  require  the 
strongest  evidence,  but  especially  so  when  it  is  claimed  that  such 
powers  have  been  conferred  upon  entire  strangers. 

The  unnatural  confidence  in  otherSj  and  the  careless  assump- 


(C 


EVANSVILLB  BANK  v.  KAUFMANN.          53 

tion  of  obligations  which  such  a  course  of  business  would  imply, 
is  so  unusual  as  to  justify  the  requirement  that  if  such  an 
authority  was  intended  to  be  conferred  it  should  have  been 
expressed  in  clear  and  unequivocal  language. 

It  is  obvious  that  neither  Feigelstock  nor  Kaufmann  &  Blun 
could  have  derived  any  benefit  or  advantage  from  the  discount 
of  bills  whose  proceeds  were,  as  appears  from  the  face  of  the 
transaction,  intended  for  the  sole  use  of  Bingham  Bros. 

Even  if  the  relation  of  consignor  and  consignee  existed  be- 
tween Bingham  Bros,  and  Feigelstock,  we  do  not  think  the 
usual  course  of  business  between  such  parties  justifies  the  as- 
sumption that  the  use  of  accommodation  paper  for  either  limited 
or  unlimited  amounts  is  the  necessary  or  usual  accompaniment 
of  such  a  connection.  On  the  other  hand,  if  we  consider  this 
letter  as  intended  to  furnish  a  credit  to  Feigelstock  with  the 
manufacturers  and  consignors  of  property  in  which  he  dealt, 
it  would  satisfy  the  apparent  object  of  the  letter,  and  the  tran- 
sactions would  assume  a  natural  and  reasonable  character  such 
as  pertains  to  the  ordinary  and  usual  course  of  business  among 
commercial  men. 

There  would  necessarily  be  a  limit  to  such  a  course  of  busi- 
ness, and  the  liability  of  the  defendants  would  be  modified  by 
the  transfer  of  property  to  correspond  with  the  amount  of  the 
obligation  assumed,  and  creating  a  liability  which  might  be 
safely  and  reasonably  incurred.  Of  course,  if  the  defendants 
have  signed  a  guaranty,  either  general  or  special,  upon  a  suffi- 
cient consideration,  by  which  they  have  unqualifiedly  promised 
to  become  liable  for  the  payment  of  all  such  drafts  as  Bingham 
Bros,  might  thereafter  draw  on  Feigelstock,  their  liability,  how- 
ever comprehensive,  would  not  be  affected  by  its  imprudence. 
But  such  is  not  the  contract  under  consideration. 

We  are  therefore  of  the  opinion,  from  the  fact  that  the  letter 
was  addressed  to  Bingham  Bros,  alone,  the  absence  of  any  al- 
lusion to  its  consideration  or  the  negotiability  of  the  drafts 
therein  referred  to,  and  a  consideration  of  the  situation  and 
the  relation  of  the  parties,  that  the  intention  could  not  fairly 
be  imputed  to  the  defendants  of  making  the  guaranty  contained 
in  the  letter  general  and  open  for  acceptance  by  any  one  who 
might  choose  to  comply  with  its  terms. 

We  have  been  unable  to  find  any  case  which  either  requires 
or  authorizes  the  classification  of  this  letter  as  a  general  guar- 


54  CONSTRUCTION  OF  CONTRACT. 

anty.  In  each  of  the  numerous  cases  cited  in  which  the  instru- 
ment considered  was  held  to  be  a  general  guaranty,  it  was 
either  addressed  generally  or  the  guaranty  contained  inherent 
evidence  that  it  was  intended  to  be  used  in  obtaining  credit 
wherever  it  was  needed. 

In  the  case  of  Benedict  v.  Sheriff,  Hill  &  Denio's  Sup.  219, 
the  letter  was  addressed  to  a  clerk  in  favor  of  a  country  mer- 
chant visiting  New  York  to  purchase  a  supply  of  goods  for  his 
trade,  and  stated,  "I  will  guarantee  the  payment  of  such  debts 
as  he  may  contract  for  the  purchase  of  goods."  It  was  held 
that  this  letter  contemplated  different  purchases  of  different 
persons,  and  could  not  have  been  intended  for  the  person  ad- 
dressed, as  he  had  no  goods  to  sell. 

The  case  of  Duval  v.  Trask,  12  Mass.  155,  is  like  that  last 
cited. 

In  Union  Bank  v.  Coster,  the  letter  was  open  and  unaddressed, 
and  expressly  contemplated  the  negotiation  of  the  drafts  re- 
ferred to  therein  by  some  bank  for  the  benefit  of  the  persons 
having  possession  of  the  letter. 

In  Russell  v.  Wiggin,  2  Story,  213,  the  court  said  that 
an  action  could  be  maintained  by  a  person  advancing  money 
upon  "letter  of  credit  written  by  persons  who  are  to  become 
the  drawees  of  bills,  drawn  under  it,  promising  to  accept  such 
bills  when  drawn,  which  letter,  although  addressed  to  the 
persons  who  are  to  be  the  drawers  of  the  bills,  is  de- 
signed to  be  shown  to  any  person  or  persons  whatsoever." 
Here  it  is  evident  that  stress  is  laid  upon  the  character  of  the 
letter,  as  showing  that  it  was  designed  for  the  persons  advanc- 
ing money  upon  the  faith  of  the  letter. 

The  case  was  that  of  a  letter  given  by  Wiggin  to  the  master 
of  a  vessel  sailing  from  Boston  to  India  to  establish  a  credit 
for  him  in  England,  and  bore  inherent  evidence  that  it  was  in- 
tended for  third  persons. 

In  Lonsdale  v.  Lafayette  Bank  of  Cincinnati,  18  Ohio  126, 
the  guaranty  required  the  drafts  to  be  accompanied  by  bills  of 
lading  of  shipments  to  the  address  of  the  guarantors.  Upon 
the  shipment  of  the  goods  and  the  attaching  of  bills  of  lading  to 
the  drafts,  a  cause  of  action  arose  in  favor  of  the  promisee  in 
the  guaranty  which  could  be  lawfully  assigned  to  a  third  party 
who  could  bring  his  action  upon  the  assigned  claim  as  we  have 


EVANSVILLE  BANK  v.  KAUFMANN.          55 

already  stated.     The  case  is  not  an  authority  upon  the  ques- 
tion as  to  whether  the  guaranty  is  general  or  special. 

The  case  of  Monroe  v.  Pilkington,  14  How.  Pr.  250,  is  re- 
ferred to  as  a  strong  case  for  the  plaintiff,  and  does  probably 
come  nearer  sustaining  its  position  than  any  other  cited.    The 
case  is  a  Special  Term  case,  and  the  question  arose  on  a  de- 
murrer to  the  complaint.     The  letter  there  under   discussion 
is  plainly  to  be  distinguished  in  material  points  from  the  one 
in  the  case  at  bar.    It  was  from  a  firm  residing  in  England  to 
another  in  this  country,  and  evidently  referred  to  and  intended 
to  promote  the   business   of  selling  at  New  York,   exchanges 
upon  Liverpool.     The  inference  was  drawn  by  the  court  from 
the  letter  and  the  course  of  business  that  it  was  intended  to      / 
be  exhibited  to  persons  buying  exchange  upon  Liverpool,  and\KrU 
thus  give  the  person  addressed  additional  facilities  to  carry  on  \  """  / 
the  business  of  selling  exchange. 

In  Lawrason  v.  Mason,  3  Cranch,  492,  the  letter,  although 
addressed  to  the  person  for  whom  the  guarantor  offered  to 
become  security,  was  by  its  express  terms  intended  for  the  per- 
son who  should  furnish  on  credit  the  property  referred  to  in 
the  letter,  and  could  have  no  other  office  to  perform. 

On  the  other  hand,  it  was  said  by  Judge  COMSTOCK,  in  Church 
v.  Brown,  supra,  that  "An  undertaking  by  one  person  to  be 
responsible  for  goods  to  be  delivered  to  another  is  in  effect  a 
request  to  deliver  the  goods.  It  is  in  law  no  more  and  no  less 
than  a  letter  of  credit,  general  and  particular,  according  as  it 
may  or  may  not  have  a  particular  address." 

The  case  of  Birckhead  v.  Brown,  not  only  on  account  of  the 
reasoning  by  which  it  is  supported,  but  because  it  is  the  de- 
cision of  a  court  distinguished  for  learning  and  ability,  is  en- 
titled to  great  weight,  although  some  of  the  reasons  urged  in 
support  of  the  judgment  are  no  longer  tenable,  owing  to  the 
provisions  of  our  Code  and  the  principles  adopted  in  later 
cases.  Brown  Brothers  &  Co.,  of  New  York,  addressed  a  letter 
to  W.  &  J.  Brown  &  Co.,  of  Liverpool,  at  the  request  of  Smith 
&  Town,  stating  that  they  desired  "to  open  a  credit 
for  £10,000,  say  ten  thousand  pounds  sterling  uncovered 
at  any  one  time,  in  favor  of  Mr.  James  Demarest,  to 
be  negotiated  by  him  in  Rio  de  Janeiro  by  drafts  on  you  at 
sixty  days  sight."  Demarest  was  the  commercial  agent  of 
Smith  &  Town,  and  represented  them  at  Eio  de  Janeiro.  Upon 


56  CONSTRUCTION  OF  CONTRACT. 

the  faith  of  this  letter  Birckhead  &  Co.  discounted  drafts  at 
the  request  of  Demarest,  and  upon  their  non-payment  by  W. 
&  J.  Brown  &  Co.,  brought  an  action  against  the  guarantors. 
BRONSON,  J.,  delivering  the  opinion  of  the  court,  says:  "These 
letters  have  been  divided  into  two  classes,  general  and  special. 
They  are  general  when  addressed  to  any  or  all  persons  without 
naming  any  one  in  particular.  They  are  special  when  addressed 
to  a  particular  individual  or  firm."  "When  the  letter  is 
special,  or  in  other  words  addressed  to  a  particular  individual, 
he  alone  has  the  right  to  act  upon  and  acquire  rights  under 
it.  If  any  one  else  attempts  to  accept  and  act  upon  the  propo- 
sition contained  in  the  letter,  he  comes  in  as  a  mere  volunteer, 
and  he  cannot  by  thus  thrusting  himself  forward  create  any 
legal  obligation  on  the  part  of  the  writer."  This  case  was  much 
more  favorable  for  the  plaintiff  than  the  one  at  bar,  for  this 
letter  seemed  to  contemplate  the  negotiation  of  the  drafts  at 
Rio  de  Janeiro  with  some  third  party. 

The  strictness  with  which  parties  assuming  to  act  upon  the 
faith  of  a  guaranty  have  been  held  to  its  precise  terms  is  illus- 
trated in  Barns  v.  Barrow,  61  N.  Y.  39;  s.  c.,  19  Am.  Rep. 
247,  where  it  was  decided  that  a  guaranty  running  to  a  mem- 
ber of  a  firm  for  goods  to  be  sold  by  him,  did  not  inure  to  the 
benefit  of  the  firm  of  which  he  was  a  member,  although  they  de- 
livered the  goods  described  in  the  guaranty.  See  also  the  cases 
therein  referred  to. 

We  have  thus  seen  that  no  cause  of  action  accrued  to  the 
plaintiff  upon  the  guaranty,  for  the  reason  that  it  is  a  special 
guaranty  upon  which  the  party  addressed  alone  could  act  and 
acquire  a  cause  of  action.  Some  confusion  has  arisen  in  the 
Consideration  of  this  case  from  an  omission  to  regard  the  oK 
vious  distinction  existing  between  a  cause  of  action  accruing 
to  the  plaintiff  in  his  own  right  upon  the  discount  by  them  of 
such  drafts,  and  one  arising  in  favor  of  Bingham  Bros,  either 
prior  to  or  simultaneous  with  such  discount,  of  which  the  plain- 
tiff now  seeks  to  avail  itself  as  their  equitable  assignee.  Dif- 
ferent considerations  are  required  to  support  these  different 
contracts.  The  court  below  reversed  the  judgment  entered  upon 
the  report  of  the  referee  in  favor  of  the  defendants  upon  the 
grounds  stated  in  the  opinion  as  follows:  "In  the  view  in- 
sisted upon  by  the  respondent  the  letter  of  credit  in  question 
in  this  case  was  a  special  letter  of  promise  to  Bingham  Bros. 


EVANSVILLE  BANK  v.  KAUFMANN.          57 

In  that  view  it  was  a  valid  contract,  for  it  would  be  so  read 
by  the  law  as  to  supply  the  consideration  so  far  as  necessary 
under  the  former  statute  of  frauds.  'If  you  will  draw  on  him 
I  will  guaranty  that  any  draft  you  may  draw  on  Mr.  A.  Feigel- 
stock  of  our  city  will  be  paid  at  maturity,'  or  it  would  be  re- 
garded an  original  promise  under  the  case  of  Gates  v.  McKee, 
13  N.  Y.  235,  and  the  defendants  held  to  the  established  con- 
struction of  such  instruments." 

The  court  here  seems  to  imply  that  there  are  two  grounds 
upon  which  the  action  could  be  maintained,  viz. :  Because  the 
promise  was  an  original  as  distinguished  from  a  collateral  one, 
and  secondly,  because  a  cause  of  action  accrued  to  Bingham 
Bros,  upon  making  the  drafts  in  suit,  and  that  cause  of  action 
passed  to  the  plaintiff  as  their  equitable  assignee  by  the  delivery 
of  the  letter  to  them,  and  their  discount  of  the  drafts.  We  do 
not  think  that  either  of  these  grounds  can  be  sustained. 

It  is  entirely  immaterial  whether  this  guaranty  be  regarded 
as  an  original  or  collateral  contract.  Both  equally  required  a 
consideration  to  support  them,  and  the  distinction  between  them 
is  important  only  as  affected  by  the  statute  of  frauds,  a  col- 
lateral contract  to  pay  the  debt  of  another  being  required  by 
that  statute  to  be  in  writing,  while  an  original  undertaking  is 
valid  even  if  made  by  parol.  No  question  arises  respecting  the 
validity  of  this  promise,  except  in  regard  to  its  want  of  con- 
sideration. If  therefore  we  could  call  this  an  original  under- 
taking, the  promise  having,  as  we  have  seen,  been  made  to  Bing- 
ham Bros,  alone,  it  still  lacks  the  indispensable  requirement  of 
a  consideration  to  support  it. 

This  consideration  must  be  proved,  and  a  presumption  of  its 
existence  can  no  more  be  indulged  in  to  support  the  action  than 
the  presumption  of  any  other  fact  material  to  the  existence  of 
a  cause  of  action.  Commercial  and  business  paper  generally 
specifies  a  consideration  upon  its  face,  and  a  defense  thereto  on 
the  ground  of  a  want  of  consideration  must  be  supported  by 
affirmative  proof  of  such  fact,  but  when  the  paper  itself  does 
not  state  a  consideration  the  omission  must  be  supplied  by  af- 
firmative proof  on  the  part  of  the  holder,  or  he  cannot  recover 
thereon.  1  Pars.  Cont.  175.  No  consideration  is  referred  to  in 
this  letter,  and  the  drafts  are  the  act  of  Bingham  Bros,  alone, 
and  are  evidence  of  no  fact  stated  therein  as  against  any  one, 


58  CONSTRUCTION  OF  CONTRACT. 

except  the  drawers.  But  even  the  drafts  do  not  purport  to  be 
drawn  for  value. 

In  every  aspect  in  which,  this  transaction  can  be  regarded 
Bingham  Bros,  appear  as  the  makers  of  the  drafts  for  their  own 
accommodation,  and  as  such  personally  liable  to  all  who  there- 
after become  parties  thereto. 

We  have  no  difficulty  in  regarding  the  plaintiff  as  the  equit- 
able assignee  of  any  cause  of  action  existing  against  the  de- 
fendants in  favor  of  Bingham  Bros.  As  has  been  already  stated, 
if  any  such  cause  of  action  arose,  it  was  assignable  and  must 
be  considered  to  have  passed  to  the  plaintiff  by  the  delivery  of 
the  guaranty  and  the  payment  by  it  of  the  proceeds  of  the  drafts 
to  Bingham  Bros.  It  thereby  became  the  equitable  owner  of 
such  cause  of  action  and  of  such  an  interest  in  the  letter  of 
credit  as  would  enable  it?  under  our  Code,  to  maintain  an  action 
against  the  defendants.  But  the  question  is  presented,  did  any 
such  cause  of  action  ever  arise?  We  have  been  unable  to  dis- 
cover any  ground  upon  which  such  a  claim  can  be  plausibly  sus- 
tained. The  letter  certainly  contains  no  reference  to  any  con- 
sideration received  by  its  writers,  and  the  proof  shows  none 
advanced  by  Feigelstock  to  them  or  by  Bingham  Bros,  to  either 
Feigelstock  or  the  guarantors. 

Upon  the  very  face  of  the  transaction  Bingham  Bros,  drew 
their  drafts  for  their  own  benefit  and  contemplated  the  accept- 
ance by  Feigelstock  for  their  accommodation.  Taking  the 
strongest  view  against  the  defendants  which  the  case  is  sus- 
ceptible of,  they  occupied  simply  the  position  of  proposed  ac- 
commodation guarantors  of  the  contemplated  accommodation 
acceptor  of  Bingham  Bros.'  drafts;  and  it  certainly  cannot  be 
claimed  that  they  thereby  incurred  any  liability  to  the  party 
for  whose  accommodation  they  had  guaranteed  such  obliga- 
tions. Atkinson  v.  Manks,  1  Cow.  692;  1  Pars.  Cont.  184; 
Thurman  v.  Van  Brundt,  19  Barb.  409 ;  Dan.  Neg.  Inst.  §  189. 
Even  if  the  letter  of  credit  be  read  as  paraphrased  by  the  court 
below,  it  falls  far  short  of  establishing  a  consideration  moving 
to  the  defendants. 

It  cannot  be  seriously  claimed  that  a  proposition,  either  writ- 
ten or  oral,  made  by  one  person  to  another,  agreeing  to  guaran- 
tee the  payment  of  any  draft  which  the  other  might  draw, 
furnished  a  sufficient  consideration  for  the  promise.  Such  a 
request  is  implied  in  all  accommodation  papers  as  between  the 


CRANE  v.   SPECHT.  59 

parties  thereto ;  and  if  this  were  held  to  import  a  sufficient  con- 
sideration, it  would  destroy  all  distinctions  between  accommo- 
dation and  genuine  business  obligations.  But  this  letter  of 
credit,  as  read  by  the  court  below,  would  not  confer  a  cause  of 
action  upon  third  parties,  even  if  it  had  been  addressed  to 

them,  without  proof  that  they  had  parted  with  value  upon  its. 

faith.  In  all  of  the  cases  cited  where  guarantors  have  been  held 
liable,  even  to  third  persons,  upon  such  instruments,  the  letter 
embraces  either  an  express  or  implied  request  to  such  persons  to 
advance  value  upon  the  faith  of  the  paper  therein  described, 
and  it  is  because  they  have  parted  with  value  upon  such  request 
that  the  liability  of  the  promisor  to  them  is  predicated.  If  no 
liability  is  incurred  in  favor  of  a  third  party  unless  he  has 
parted  with  value,  much  less  can  it  be  claimed  that  it  is  in  favor 
of  an  original  party  to  the  contract,  from  whom,  as  is  shown 
affirmatively,  no  consideration  whatever  proceeded.  We  are 
therefore  of  the  opinion  that  the  plaintiff  is  not  entitled  to  main- 
tain this  action. 

The  order  of  the  General  Term  should  be  reversed,  and  the 
judgment  rendered  upon  the  report  of  the  referee  affirmed,  with 
costs. 

Order  reversed  and  judgment  affirmed. 

Judgment  affirmed. 

All  concur,  except  DANFORTH,  J.,  not  voting. 


CRANE  v.  SPECHT.     1894. 
39  Neb.  123;  57  N.  W.  Rep.  1015;  42  Am.  St.  Eep.  502. 

Error  from  the  district  court  of  Douglas  county.  Tried 
below  before  Doane,  J. 

HARRISON,  J.  In  this  case,  an  action  in  the  district  court  of 
Douglas  county,  Nebraska,  the  plaintiff  the  Crane  Company, 
plaintiff  in  the  court  below  and  in  this  court,  sought  to  recover 
of  defendant  Christian  Specht  a  certain  sum  which  it  claimed 
due  from  defendant  as  guarantor  of  the  account  of  one  A.  C. 
Lichtenberger  to  the  Crane  Bros.  Manufacturing  Company. 
The  petition  of  plaintiff  is  as  follows: 


60  CONSTRUCTION  OF  CONTRACT. 

"The  plaintiff  in  the  above  entitled  cause,  complaining  of 
defendant  therein,  for  a  cause  of  action  states  that  said  plain- 
tiff is  a  corporation  duly  organized  under  the  laws  of  the  state 
of  Illinois ;  that  on  and  prior  to  August  23,  1889,  Crane  Bros. 
Manufacturing  Company  was  a  corporation  organized  and 
doing  business  under  the  laws  of  the  state  of  Illinois,  and  was 
engaged  in  the  sale  of  plumbing  and  other  materials  in  the  city 
of  Omaha,  Nebraska.  That  prior  to  said  August  23,  1889,  said 
Crane  Bros.  Manufacturing  Company  had  sold  and  furnished 
to  one  A.  C.  Liehtenberger  goods  and  materials;  that  for  said 
goods  said  Liehtenberger  was  indebted  to  said  Crane  Bros. 
Manufacturing  Company,  and  at  said  date  said  Crane  Bros. 
Manufacturing  Company  refused  to  furnish  said  Liehtenberger 
additional  goods  or  material,  unless  the  payment  of  the  bill 
already  incurred  by  him,  and  the  payment  of  goods  thereafter 
delivered,  should  be  guarantied  by  some  responsible  party ;  that 
in  consideration  of  Crane  Bros.  Manufacturing  Company's 
selling  additional  goods  to  said  Liehtenberger,  said  defendant 
Christian  Specht  executed  his  written  guaranty,  whereby  he 
agreed  to  pay  the  indebtedness  already  incurred  by  said  Lieh- 
tenberger with  said  Crane  Bros.  Manufacturing  Company  and 
the  payment  of  all  materials  which  said  Liehtenberger  should 
thereafter  purchase  of  them;  that  thereafter  said  Crane  Bros. 
Manufacturing  Company,  relying  upon  said  guaranty,  con- 
tinued to  sell  and  deliver  to  said  Liehtenberger  goods  and  mate- 
rials,— a  copy  of  said  guaranty  is  hereto  attached,  marked  Ex- 
hibit 'A,'  and  made  a  part  of  this  petition;  that  afterwards JJie 
said  plaintiff  became  incorporated  and  succeeded  to  the  busi- 
ness and  interests  of  said  Crane  Bros.  Manufacturing  Company 
and  continued  to  carry  on  said  business  and  to  supply  the  cus- 
tomers of  said  Crane  Bros.  Manufacturing  Company ;  that,  rely- 
ing upon  said  guaranty  made  by  said  Christian  Specht  to  said 
Crane  Bros.  Manufacturing  Company,  said  plaintiff  sold  and 
furnished  said  Liehtenberger  goods  and  materials;  that  said 
sales  made  by  plaintiff  to  said  Liehtenberger  were  made  with 
the  knowledge  and  consent  of  said  defendant  and  at  his  request, 
and  with  the  knowledge  and  intention  of  said  plaintiff  and  said 
defendant  that  said  defendant  should  be  liable  to  the  said  plain- 
tiff for  goods  sold  to  said  Liehtenberger  under  said  guaranty 
to  said  Crane  Bros.  Manufacturing  Company,  and  that  said 
goods  were  furnished  by  said  plaintiff  relying  upon  said  guar- 


CRANE  v.   SPECHT.  61 

anty  and  at  the  request  of  said  defendant  that  said  goods 
should  be  so  furnished ;  that  a  statement  of  said  goods  furnished 
by  said  Crane  Bros.  Manufacturing  Company,  and  said  plain- 
tiff to  said  Lichtenberger  in  pursuance  of  said  guaranty  made 
by  said  defendant,  is  hereto  attached,  marked  Exhibit  *B,'  and 
made  a  part  hereof ;  that  on  account  of  goods  so  furnished  there 
remains  now  due  said  plaintiff  the  sum  of  eight  hundred  eighty- 
one  dollars  and  ninety-nine  cents  ($881.99),  which  amount  said 
Lichtenberger  has  failed  and  neglected  to  pay.  Wherefore  the 
plaintiff  demands  judgment  against  said  defendant  in  the  sum 
of  one  thousand  dollars  ($1,000),  and  the  costs  of  suit." 

The  defendant  answers  the  petition  as  follows : 

"First.  That  he  is  not  advised  as  to  whether  or  not  the  plain- 
tiff is  a  legal  corporation,  and  cannot  admit,  and  therefore 
denies  the  same. 

"  Second.  The  defendant,  further  answering,  admits  that  the 
Crane  Bros.  Manufacturing  Company  sold  and  furnished  to 
the  said  A.  C.  Lichtenberger  on  or  about  August  23,  1889,  some 
goods  and  merchandise ;  and  further  admits  that  on  the  23d  day 
of  August,  1889,  he  executed  the  guaranty  mentioned  in  the 
petition,  of  which  Exhibit  'A'  is  a  copy. 

"Third.  This  defendant,  further  answering,  says  that  he  is 
not  advised  as  to  whether  or  not  the  plaintiff  succeeded  to  the 
business  interests  of  Crane  Bros.  Manufacturing  Company  and 
continued  to  carry  on  said  business  and  to  supply  the  customers 
of  said  Crane  Bros.  Manufacturing  Company,  and  cannot  admit, 
and  therefore  denies  the  same. 

"Fourth.  The  defendant,  further  answering,  denies  that  the 
plaintiff  sold  and  furnished  said  Lichtenberger  goods  and  ma- 
terials as  alleged  in  said  petition,  and  denies  that  said  alleged 
sales  were  made  to  said  Lichtenberger  with  the  knowledge  and 
consent  of  the  plaintiff  and  at  his  request,  and  denies  that  the 
defendant  requested  the  plaintiff  to  sell  any  goods  whatever  to 
said  Lichtenberger,  or  ever  in  any  manner  whatever  agree  to 
become  liable  for  the  same,  and  denies  that  there  is  due  the 
plaintiff  the  sum  of  $881  from  said  Lichtenberger,  or  any  part 
thereof. 

"And  the  said  defendant,  further  answering,  denies  that  he  ia 
indebted  to  the  plaintiff  in  any  sum  whatever. 

"Wherefore  the  defendant,  having  fully  answered  said  peti- 
tion, prays  to  be  hence  dismissed  with  his  reasonable  costs." 


62  CONSTRUCTION  OF  CONTRACT. 

Exhibit  "A,"  the  contract  of  guaranty,  attached  to  the  peti- 
tion and  the  foundation  of  this  action,  is  as  follows: 

EXHIBIT  "A." 

Omaha,  Neb.,  August  23,  1889. 
"Messrs.  Crane  Bros.  Manufacturing  Company,  City. 

Gentlemen:  I  will  guaranty  the  payment  of  your  account 
against  A.  C.  Lichtenberger,  and  for  all  materials  he  may  pur- 
chase from  this  date.  The  above  is  to  hold  good  until  written 
notice  is  given  you  by  me. 

"Yours  truly, 

"C.  SPECHT." 

A  jury  was  waived  and  trial  had  to  the  court.  There  was  a 
finding  and  judgment  in  favor  of  defendant.  Plaintiff  filed  a 
motion  for  new  trial,  which  was  argued  and  overruled,  and 
the  case  was  brought  here  by  the  plaintiff  for  review. 

The  evidence  in  the  case  discloses  that  on  the  23d  day  of 
August,  1889,  the  defendant  executed  and  delivered  unto  the 
Crane  Bros.  Manufacturing  Company  the  guaranty  in  ques- 
tion (Exhibit  "A") ;  that  on  or  about  January  20,  1890,  the 
corporation,  at  an  annual  meeting  of  its  stockholders  then  held, 
changed  its  name  from  Crane  Bros.  Manufacturing  Company 
to  Crane  Company,  no  change  or  alteration  whatever  being  at 
this  time  made  in  the  officers,  management,  business,  or  location 
of  place  of  business,  and  after  such  change  continued  to  furnish 
goods  and  materials  to  Lichtenberger,  for  which  goods  and  ma- 
terials Lichtenberger  failed  to  pay;  that  defendant  Speclit  was 
requested  to  make  a  new  guaranty  to  the  Crane  Company,,  but 
refused  to  do  so}  and  never  did  execute  such  a  guaranty;  that 
the  action  is  brought  upon  the  account  running  through  the 
whole  time  during  which  Lichtenberger  purchased  goods  of  the 
corporation,  both  under  the  old  and  the  new  name,  for  a  bal- 
ance due  upon  the  account  which  is  due  for  goods  sold  to  Lich- 
tenberger after  the  change  in  the  name  of  the  corporation. 

The  question  raised  by  the  bill  of  exceptions  and  strenuously 
argued  by  counsel  is,  can  the  Crane  Company  recover  upon  the 
contract  of  guaranty  given  by  defendant  to  Crane  Bros.  Manu- 
facturing Company?  The  attorneys  for  plaintiff  contended 
that  the  Crane  Company  was  organized  on  the  20th  day  of 
January,  1890,  being  the  Crane  Bros.  Manufacturing  Company 
under  the  new  name,  Crane  Company;  that  it  was  composed  of 


CRANE  v.  SPECHT.  63 

the  same  persons,  managed  by  the  same  officers,  engaged  in  the 
same  business  and  at  the  same  location;  that  there  was  merely 
a  change  in  the  name,  and  no  other  or  further  change  in  the 
composition  or  operations  of  the  company,  and  hence  it  was 
entitled  to  recover  on  this  as  well  as  other  contracts  to  which 
the  Crane  Bros.  Manufacturing  Company  was  a  party.  The 
defendant's  attorneys  claim  that  the  Crane  Company  cannot  re- 
cover, by  virtue  of  the  guaranty  given  by  defendant  to  the 
Crane  Bros.  Manufacturing  Company,  any  sum  due  it  for  goods 
sold  or  furnished  Lichtenberger  after  the  change  of  its  name  to 
"Crane  Company."  The  contention  in  the  case  resolves  itself 
to  the  question,  did  the  change  in  the  name  of  the  corporation 
deprive  it  of  the  right  to  recover,  upon  the  contract  of  guaranty 
given  to  it  by  defendant  in  its  former  name,  the  price  of  goods 
furnished  after  the  change  in  style  to  the  party  whose  account 
was  guarantied  to  it  under  the  old  name?  The  answer  to  this 
question  will  be  most  readily  obtained,  it  seems  to  me,  by  an 
examination  of  the  nature  of  the  contract  of  guaranty  and  the 
construction  to  be  given  to  it. 

In  1  Brandt,  Suretyship  &  Guaranty  (2d  Ed.),  pp.  134  and 
135,  sec.  93,  it  is  said,  in  discussing  such  contracts:  "A  rule 
never  to  be  lost  sight  of  in  determining  the  liability  of  a  surety 
or  guarantor  is,  that  he  is  a  favorite  of  the  law  and  has  a  right 
to  stand  upon  the  strict  terms  of  his  obligation,  when  such  terms 
are  ascertained.  This  is  a  rule  universally  recognized  by  the 
courts,  and  is  applicable  to  every  variety  of  circumstances." 
Again  it  is  said:  "A  surety  or  guarantor  usually  derives  no 
benefit  from  his  contract.  His  object  generally  is  to  befriend 
the  principal.  *  *  *  The  guarantor  is  only  liable  because 
he  has  agreed  to  become  so.  He  is  bound  by  his  agreement  and 
nothing  else.  *  *  *  It  has  been  repeatedly  decided  that  he 
is  under  no  moral  obligation  to  pay  the  debt  of  his  principal. 
Being,  then,  bound  by  his  agreement  alone  and  deriving  no 
benefit  from  the  transaction,  it  is  eminently  just  and  proper 
that  he  should  be  a  favorite  of  the  law  and  have  a  right  to  stand 
upon  the  strict  terms  of  his  obligation.  To  charge  him  beyond 
its  terms  or  to  permit  it  to  be  altered  without  his  consent  would 
be,  not  to  enforce  the  contract  made  by  him,  but  to  make  another 
for  him." 

In  Miller  v.  Stewart,  9  Wheat.  (U.  S.)  680,  STORY,  J.,  says: 
"NothJtag  can  be  clearer,  both  upon  principle  and  authority, 


64  CONSTRUCTION  OF  CONTRACT. 

than  the  doctrine  that  the  liability  of  a  surety  is  not  to  be  ex- 
tended by  implication  beyond,  the  terms  of  his  contract.  To  the 
extent  and  in  the  manner  and  under  the  circumstances  pointed 
out  in  his  obligation  he  is  bound,  and  no  farther.  It  is  not 
sufficient  that  he  may  sustain  no  injury  by  a  change  in  the  con- 
tract, or  even  that  it  may  be  for  his  benefit.  He  has  a  right  to 
stand  upon  the  very  terms  of  his  contract,  and  if  he  does  not 
assent  to  any  variation  of  it,  and  a  variation  is  made,  it  is 
fatal." 

It  being  well  settled  that  the  foregoing  are  the  rules  of  law 
by  which  such  contracts  as  the  one  in  the  ease  at  bar  are  gov- 
erned and  construed,  I  will  pass  now  to  some  of  the  cases  in 
wh4ch  these  rules  have  been  particularly  applied  to  the  facts  as 
developed  in  the  cases,  selecting  such  as  are  similar  to  the  one 
under  consideration  and  more  or  less  directly  in  point. 

In  the  case  of  Allison  v.  Kutledge,  5  Yerg.  (Tenn.)  194,  the 
defendant  addressed  a  letter  to  "Mr.  Allison,"  by  which  he  be- 
came surety  for  the  payment  of  the  purchase  price  of  some 
bacon  purchased  by  one  Cooper,  and  was  sued  on  the  instrument 
by  John  and  Joseph  Allison,  as  guarantor,  for  $100,  the  price 
of  the  bacon.  CATRON,  C.  J.,  in  delivering  the  opinion  of  the 
court,  says :  ' '  Can,  under  any  circumstances,  a  recovery  be  had 
in  this  action  by  force  of  the  guaranty?  It  is  addressed  in  the 
singular  to  Mr.  Allison.  Kutledge  undertook  for  the  debt  of 
Cooper,  is  bound  by  the  writing  and  this  only.  The  contract 
cannot  be  varied  or  its  meaning  explained  without  violating  the 
statute  of  frauds.  He  did  not  address  himself  to  two  Allisons, 
but  to  one.  The  paper,  from  its  face,  could  not  be  given  in 
evidence  to  sustain  the  joint  action,  and  it  could  not  be  proved 
by  parol  that  two  were  meant. ' ' 

In  the  case  of  Smith  v.  Montgomery,  3  Tex.  199,  the  defend- 
ant Montgomery  wrote  and  forwarded  a  letter  of  credit  as  fol- 
lows: 

"Colorado,  Dec.  27,  1839. 

"Col.  Smith  &  Pilgrim— Gentlemen :  Mr.  A.  W.  Tennard 
wishes  to  get  some  dry  goods  on  time.  If  you  will  furnish,  I 
will  see  you  paid  as  far  as  to  the  amount  of  ($3,000)  three  thou- 
sand dollars, 

"And  much  oblige  yours,  with  respect, 

"JAMES  S.  MONTGOMERY." 

This  letter  was  addressed  on  the  back  to  Smith  alone.     It 


CRANE  v.   SPECHT.  65 

appears  that  Smith  and  Pilgrim  had  been  partners  in  business, 
but  a  very  short  time  prior  to  the  date  of  the  letter  had  dis- 
solved the  partnership.  The  letter  being  addressed,  on  the  back 
to  Smith  alone,  was  delivered  to  him  and  he  supplied  the  goods 
to  Tennard,  who  failed  to  pay  for  them,  and  Smith  instituted 
the  action  to  recover  from  Montgomery,  as  guarantor,  the  price 
of  the  goods  to  the  amount  of  the  guaranty.  Mr.  Justice 
WHEELER,  in  delivering  the  opinion  of  the  court,  says:  "Upon 
consideration,  we  are  all  of  the  opinion  that  we  must  look  to 
the  address  upon  the  face  of  the  letter,  and  not  to  the  direction 
upon  the  back  of  it,  to  ascertain  the  party  to  whom  its  applica- 
tion and  promise  were  intended,  by  the  writer,  to  have  been 
made;  that,  bearing  upon  its  face  a  direction  and  address  full 
and  complete,  and  free  from  ambiguity,  we  must  take  that  as 
the  certain  criterion  to  determine  its  application  without  regard 
to  the  discrepancy  in  the  superscription.  If  the  letter  did  not 
bear  upon  its  face  the  proper  address,  resort  might  be  had  to 
the  superscription,  or  perhaps  to  other  extrinsic  evidence,  if 
necessary,  to  determine  its  direction  and  application.  (1  How., 
169.)  But  when  the  contract  upon  its  face  is  complete  and  per- 
fect, and  certain  to  every  intent,  as  well  in  respect  to  the  parties 
as  the  subject-matter,  we  do  not  think  it  admissible  to  resort  to 
anything  extrinsic  to  control  the  express  terms  and  clear  import 
of  the  face  of  the  instrument.  *  *  *  It  is  a  well  settled 
rule,  applicable  to  this  class  of  cases,  that  the  liability  of  a  guar- 
antor or  surety  cannot  be  extended  by  implication  or  other- 
wise beyond  the  actual  terms  of  his  engagement.  It  does  not 
matter  that  a  proposed  alteration  would  even  be  for  his  benefit, 
for  he  has  a  right  to  stand  upon  the  very  terms  of  his  agree- 
ment. The  case  must  be  brought  strictly  within  the  terms  of 
the  guaranty,  when  reasonably  interpreted,  or  the  guarantor 
will  not  be  liable." 

In  the  case  of  Evansville  National  Bank  of  Evansville,  Ind., 
v.  Kaufmann,  93  N.  Y.  273,  it  is  said:  "It  is  always  competent 
for  a  guarantor  to  limit  his  liability,  either  as  to  time,  amount, 
or  parties,  by  the  terms  of  his  contract,  and  if  any  such  limita- 
tion be  disregarded  by  the  party  who  claims  under  it,  the  guar- 
antor is  not  bound.  It  follows  that  no  one  can  accept  its  prop- 
ositions or  acquire  any  advantage  therefrom  unless  he  is  ex- 
pressly referred  to  or  necessarily  embraced  in  the  description  of 
the  persons  to  whom  the  offer  of  guaranty  is  addressed."  . 

5 


66  CONSTRUCTION  OF  CONTRACT. 

' '  Guarantor  liable  only  to  person  to  whom  he  makes  the  guar- 
anty." (Second  Nat.  Bank  of  Peoria  v.  Diefendorf,  90  111.  396.) 

A  guarantor's  engagement  does  not  make  him  answerable  for 
goods  furnished  by  any  other  person  than  the  one  with  whom 
the  contract  of  guaranty  is  made.  He  is  not  answerable  beyond 
the  scope  of  his  engagement.  (Walsh  v.  Bailie,  10  Johns.  (N. 
,Y.)  179;  Penoyer  v.  Watson,  16  Johns.  (N.  Y.)  99.) 

"Where  a  letter  of  credit  is  addressed  to  a  particular  firm  no 
one  else  can  rely  on  it  as  a  guaranty."  (Taylor  v.  Wetmore, 
10  Ohio  491.) 

In  Barnes  v.  Barrow,  61  N.  Y.  39,  it  being  a  case  in  which, 
under  a  written  contract  of  guaranty  made  with  a  particular 
person,  a  partnership  of  which  that  person  was  a  member  sought 
to  recover  the  value  of  goods  furnished  the  person  for  whose 
debt  or  default  the  guarantor  stood  charged  to  answer,  it  is 
said :  ' '  On  the  face  of  this  contract  it  is  plain  that  no  one  could 
act  upon  it,  except  the  persons  named  in  it."  And  Burge  on 
Suretyship  (ch.  3)  is  cited  as  follows:  "The  contract  of  surety- 
ship is  to  be  construed  strictly;  that  is,  the  obligation  is  not  to 
be  extended  to  any  other  subject,  to  any  other  person,  or  to  any 
other  period  of  time  than  is  expressed,  or  necessarily  included, 
in  it."  And  further  it  is  stated:  "In  the  Koman  law  the  rule 
now  under  consideration  assumes  the  form  of  a  maxim:  'An 
agreement  of  guaranty  made  with  one  person  cannot  be  ex- 
tended to  another  person.'  ' 

To  the  same  effect  as  the  above  cases  is  that  of  Taylor  v.  Me- 
Clung's  Executor,  2  Houston  (Del.),  24,  cited  by  attorneys  for 
defendant  in  error  in  their  brief,  and  which  is  a  case  very  much 
in  point.  Our  own  court  has  recognized  the  same  principle  in 
the  case  of  Lee  v.  Hastings,  13  Neb.  508. 

The  case  most  directly  in  point  is  that  of  Grant  v.  Naylor,  4 
Cranch  (U.  S.)  205.  In  this  case  John  and  Jeremiah  Naylor 
brought  an  action  against  Daniel  Grant  on  a  letter  or  contract 
of  guaranty  which  was  addressed  to  John  and  Joseph  Naylor. 
Chief  Justice  MARSHALL  in  the  opinion  in  the  case  says :  ' '  That 
the  letter  was  really  designed  for  John  and  Jeremiah  Naylor 
cannot  be  doubted,  but  the  principles  which  require  that  the 
promise  to  pay  the  debt  of  another  shall  be  in  writing,  and 
which  will  not  permit  a  written  contract  to  be  explained  by 
parol  testimony,  originate  in  a  general  and  a  wise  policy,  which 
this  court  cannot  relax  so  far  as  to  except  from  its  operation 


CRANE  v.   SPECHT.  67 

cases  within  the  principles.  Already  have  so  many  cases  been 
taken  out  of  the  statute  of  frauds,  which  seem  to  be  within  its 
letter,  that  it  may  well  be  doubted  whether  the  exceptions  do  not 
let  in  many  of  the  mischiefs  against  which  the  rule  was  intended 
to  guard.  *  *  *  On  examining  the  cases  which  have  been 
cited  at  the  bar,  it  does  not  appear  to  the  court  that  they  author- 
ize the  explanation  of  the  contract  which  is  attempted  in  this 
case.  This  is  not  a  case  of  ambiguity.  It  is  not  an  ambiguity 
patent,  for  the  face  of  the  letter  can  excite  no  doubt.  It  is  not 
a  latent  ambiguity,  for  there  are  not  two  firms  of  the  name  of 
John  &  Joseph  Naylor  &  Co.z  to  either  of  which  this  letter  might 
have  been  delivered.  *  *  *  In  such  a  case  the  letter  itself 
is  not  a  written  contract  between  Daniel  Grant,  the  writer,  and 
John  and  Jeremiah  Naylor,  the  persons  to  whom  it  was  de- 
livered. To  admit  parol  proof  to  make  such  a  contract  is  going 
further  than  courts  have  ever  gone,  where  the  writing  is  itself 
a  contract,  not  evidence  of  a  contract,  and  where  no  pre-existing 
obligation  bound  the  party  to  enter  into  it." 

In  the  case  at  bar  the  defendant  Specht  addressed  the  letter, 
or  contract  of  guaranty  sued  upon,  to  the  Crane  Bros.  Manu- 
facturing Company,  and  not  to  the  Crane  Company.  At  the 
time  the  contract  was  entered  into  there  was  no  such  corporation 
in  existence  as  the  Crane  Company.  The  contract  of  guaranty 
made  by  Specht  was  not  in  any  manner  for  his  own  benefit, 
but  to  oblige,  befriend,  or  aid  Lichtenberger,  and  was  such  a 
contract  as  authorities  uniformly  hold  will  be  strictly  construed, 
and  when  not  uncertain,  indefinite,  or  ambiguous,  will  not  be 
extended  in  any  particular  beyond  the  scope  of  its  terms.  On 
January  20,  1890,  when  the  change  of  the  name  of  the  corpo- 
ration from  Crane  Bros.  Manufacturing  Company  to  Crane 
Company  was  made  there  was  no  notice  given  defendant  that 
such  change  had  been  made.  The  change  could  not  and  did  not 
pass  or  transfer  the  right  of  the  Crane  Bros.  Manufacturing 
Company  to  the  Crane  Company  to  furnish  goods  to  Lichten- 
berger and  rely  upon  the  guaranty  of  Specht  to  answer  for  the 
debt  or  default  of  Lichtenberger.  The  goods,  the  value  of 
which  it  is  sought  to  recover  in  this  action,  were  furnished  to 
Lichtenberger  after  the  Crane  Bros.  Manufacturing  Company 
became  the  Crane  Company,  January  20,  1890,  and  this  is  not 
an  action  for  the  price  of  goods  furnished  by  the  Crane  Bros. 
Manufacturing  Company  to  Lichtenberger,  which  under  certain 


68  CONSTRUCTION  OF  CONTRACT. 

circumstances  as  to  assignment,  and  possibly  without,  would  be 
a  different  case  and  raise  another  point  or  question.  The  in- 
strument containing  the  guaranty  was  plain,  clear,  and  definite 
in  its  terms,  and  not  in  any  particular  ambiguous,  and  certainly 
not  as  to  the  person  or  corporation  to  whom  or  which  it  was 
addressed.  It  was  a  contract  of  guaranty  to  and  with  the  Crane 
Bros.  Manufacturing  Company,  and  not  the  Crane  Company, 
although  the  persons  composing  the  first  may  have  been  iden- 
tical with  those  of  the  second,  and  the  introduction  of  the  letter, 
showing  as  it  does  the  guaranty  to  the  Crane  Bros.  Manufactur- 
ing Company,  was  not  competent  to,  and  does  not,  support  the 
action  of  the  guaranty  by  the  Crane  Company,  the  plaintiff  in 
this  case,  nor  do  I  think  that  evidence  could  be  received  to  show 
that  the  Crane  Company  had  the  same  officers,  and  was,  under 
the  same  management,  engaged  in  the  same  business  and  in  the 
same  location  as  the  Crane  Bros.  Manufacturing  Company,  or 
that  it  had  the  same  stockholders  and  merely  changed  its  name, 
or,  if  received,  that  it  would  alter  or  affect  in  any  manner  the 
relations  or  rights  of  the  parties  to  the  action.  At  the  time  the 
goods  were  furnished  to  Lichtenberger  there  was  no  Crane  Bros. 
Manufacturing  Company.  It  had  ceased  to  exist  or  had  become, 
by  change  of  name2  the  Crane  Company,  and  Specht  could  rely 
upon  the  exact  terms  of  his  contract  and  demand  that  his  rights 
and  liability  be  measured  by  the  guaranty  as  written,  signed, 
and  delivered  by  him,  to  be  bound  only  for  goods  furnished  to 
Lichtenberger  by  the  Crane  Bros.  Manufacturing  Company  as 
existing  at  the  time  the  contract  was  made  and  by  the  name  as 
set  forth  in  his  letter.  The  judgment  of  the  lower  court  was 
right  and  is  Affirmed. 


FIRST  COMMERCIAL  BANK  v.  TALBERT.     1895. 
103  Mich.  625;  61  N.  W.  Rep.  888;  50  Am.  St.  Eep.  385. 

MONTGOMERY,  J.  In  1884,  Leroy  Moore  &  Co.,  composed  of 
Leroy  Moore  and  defendant,  James  Talbert,  were  engaged  in 
the  banking  business  at  Greenville,  Michigan,  and  in  June  of 
that  year  closed  their  doors.  At  this  time,  the  First  National 
Bank  of  Pontiac  held  about  fifty  thousand  dollars  of  commer- 
cial paper  with  the  indorsement  of  Leroy  Moore  &  Co.  Mr. 


FIRST  COM.  BANK  v.  TALBERT.  69 

John  D.  Norton,  cashier  of  the  First  National  Bank,  had  an 
interview  with  the  defendant,  Talbert,  in  which  Mr.  Norton 
stated  to  the  defendant  that  the  bank  held  this  amount  of  paper, 
and  should,  for  its  protection,  have  some  writing  to  hold  the 
defendant,  Talbert,  on  renewals.  Subsequently,  an  authority 
in  writing  was  sent  to  the  bank  in  the  following  terms: 

"Greenville,  Mich.,  Sept.  15,  1884. 
* '  John  JD.  Norton,  Cashier. 

"""Dear  Sir:  I  hereby  authorize  Leroy  Moore  to  use  my  name 
as  one  of  the  firm  of  Leroy  Moore  &  Co.  as  indorsers  on  paper 
sent  you  for  renewals. 

"Very  respectfully, 

"JAMES  TALBERT." 

Among  the  paper  held  by  the  bank  at  the  time  of  the  suspen- 
sion of  Leroy  Moore  &  Co.  were  notes  amounting  to  upwards  of 
five  thousand  dollars,  signed  by  C.  S.  D.  Harroun.  The  paper 
of  Harroun  was  renewed  from  time  to  time,  and  reduced  until 
the  note  in  suit  represents  the  unpaid  portion  of  his  paper. 
The  present  note  was  taken  by  the  plaintiff,  the  First  Com- 
mercial Bank.  The  First  National  Bank  continued  business 
until  January  1,  1893,  when  the  First  Commercial  Bank  was_ 
organized  under  the  state  banking  law,  and  the  testimony  tends 
TxT~sIiow  that  the  only  change  was  a  reorganization,  the  First- 
Commercial  taking  all  the  paper  of  the  First  National,  and  as- 
suming all  its  liabilities,  and  having  the  same  stockholders  and 
the  same  officers  and  board  of  directors. 

Three  contentions  were  made  by  the  defendant  on  the  trial: 
1.  That  the  authority  relied  upon  was  not  an  authority  to  in- 
dorse the  firm  name  of  Leroy  Moore  &  Co.,  but  the  name  of 
James  Talbert;  2.  That  the  authority  was  to  indorse  paper 
held  by  the  First  National  Bank  only,  and  not  paper  held  by 
the  First  Commercial  Bank;  3.  That  the  authority  cannot  be 
held  to  authorize  repeated  renewals,  but  must  be  limited  to 
renewals  of  paper  held  by  the  bank  on  September  15,  1884,  or, 
at  the  most,  that  defendant  could  not  be  held  by  renewals  after 
such  original  paper  would  have  outlawed.  The  circuit  judge 
directed  a  verdict  for  the  defendant,  and  plaintiff  appeals. 

1.  We  do  not  think  the  authorization  open  to  the  construc- 
tion contended  for  by  the  defendant.  It  is  suggested  that,  the 
authority  being  "to  use  my  name,"  it  should  be  construed  as 


70  CONSTRUCTION  OP  CONTRACT. 

authorizing  Moore  to  sign  the  individual  name  of  Talbert,  and 
not  the  firm  name.  But  we  think  it  clear  that  the  intent  was 
to  authorize  the  continuance  of  the  use  of  the  firm  name.  In  no 
other  way  would  the  name  of  Talbert  be  signed  as  a  member  of 
the  firm  of  Leroy  Moore  &  Co. 

2.  Defendant  also  insists  that2  the  authority  being  directed 
to  John  B.  Norton  as  cashier  of  the  First  National  Bank,  the 
plaintiff  could  not  act  upon  it,  and  charge  the  defendant;  and 
cases  are  cited  in  which  the  guaranty  of  payment  of  obligations, 
to  be  in  the  future  incurred,  to  a  particular  firm  has  been  held 
not  to  bind  the  guarantor  to  meet  obligations  incurred  by  pur- 
chase made  of  another  or  different  firm,  even  though  the  firm 
be  the  successor  to  the  firm  addressed.  The  case  of  Crane  Co. 
v.  Specht,  39  Neb.  123,  42  Am.  St.  Rep.  562,  is  a  case  of  this 
character.  There  is  much  force  in  the  contention  of  plaintiff, 
that  the  authorization  in  question  is  something  more  than  a 
guaranty  of  payment,  and  is  in  the  nature  of  a  continuation  of 
the  partner's  authority  to  bind  the  banking  firm  of  Leroy  Moore 
&  Co.  by  indorsement,  and  that  the  instrument  should  not  be 
construed  with  the  same  strictness  as  an  ordinary  guaranty,  but 
more  as  in  the  nature  of  a  continuation  of  the  copartnership 
for  the  purpose  of  dealing  with  the  paper  then  held  by  the  bank. 
But,  however  this  may  be,  we  think  that  the  First  Commercial 
Bank  is  substantially  identical  with  the  First  National.  The 
state  banking  law  (3  Howell's  Statutes,  Sec.  3208  b6)  author- 
izes the  reorganization  of  a  national  bank  as  a  state  bank.  It 
provides:  "Thereupon  all  assets,  real  and  personal,  of  said 
dissolved  national  bank  shall,  by  act  of  law,  be  vested  in  and 
become  the  property  of  such  state  bank,  subject  to  all  liabilities 
of  said  national  bank  not  liquidated  under  the  laws  of  the 
United  States  before  such  reorganization." 

It  was  evidently  under  this  statute  that  the  reorganization 
was  effected,  as  the  testimony  is,  that  the  First  Commercial  took 
all  the  paper  of  the  First  National,  and  assumed  all  the  liabil- 
ities, and  had  the  same  board  of  directors  and  stockholders  at 
the  time  of  it.  In  the  well-considered  case  of  City  Nat.  Bank 
v.  Phelps,  97  N.  Y.  44,  49  Am.  Rep.  513,  a  question  which  we 
think  is  precisely  analogous  to  the  one  here  under  consideration 
was  considered.  The  court  held  that  a  national  bank,  whieh 
was  a  reorganization  of  a  former  state  bank,  retained  its  iden- 
tity, so  that  a  guaranty  of  payment  made  to  the  state  bank  could 


BARNS  v.   BARROW.  71 

be  enforced  by  the  reorganized  national  bank.  It  was  said: 
"All  property  and  rights  which  they  held  before  organizing  as 
national  banks  are  continued  to  be  vested  in  them  under  their 
new  status.  Great  inconveniences  might  result  if  this  saving 
of  their  existing  assets  did  not  include  pending  executory  con- 
tracts and  pending  guaranties,  as  well  as  vested  rights  of  prop- 
erty. Although,  in  form,  their  property  and  rights  as  state 
banks  purport  to  be  transferred  to  them  in  their  new  status  as 
national  banks,  yet,  in  substance,  there  is  no  actual  transfer 
from  one  body  to  another,  but  a  continuation  of  the  same  body 
under  a  changed  jurisdiction.  As  between  it  and  those  who 
have  contracted  with  it,  it  retains  its  identity,  notwithstanding 
its  acceptance  of  the  privilege  of  organizing  under  the  national 
banking  act." 

3.  Nor  do  we  think  that  the  authorization  should  be  con- 
strued as  limiting  the  authority  to  one  to  make  the  renewals  of 
the  particular  notes  then  held  by  the  bank.  The  statement 
should  be  construed  with  reference  to  the  known  situation  of  the 
parties,  and  the  evident  purpose  with  which  it  was  executed, 
which  very  plainly  was  to  invest  Moore  with  a  discretion  to  con- 
tinue these  renewals  until  the  paper  could  be  retired  by  collec- 
tion. 

The  judgment  will  be  reversed,  and  a  new  trial  ordered. 

The  other  justices  concurred. 


BARNS  v.  BARROW.    1874. 
61  N.  Y.  39;  19  Am.  Rep.  247. 

Appeal  from  an  order  of  the  General  Term  of  the  Supreme 
Court  in  the  fourth  judicial  department,  reversing  a  judgment 
in  favor  of  defendant,  entered  on  the  report  of  a  referee. 

This  action  was  upon  a  guaranty. 

On  the  20th  of  October,  1869,  Edward  F.  Barrow  entered  into 
a  written  agreement  with  the  plaintiff,  John  W.  Barns,  where- 
by Barns  agreed  to  furnish  Barrow  flour  and  feed  to  be  sold  by 
the  latter  on  commission,  at  prices  to  be  designated  by  the 
former.  Barrow  was  to  account  for  the  proceeds  of  sales,  de- 
ducting his  commissions.  The  defendant  guaranteed,  in  writ- 


72  CONSTRUCTION  OF  CONTRACT. 

ing,  the  performance  of  this  agreement  on  the  part  of  Edward 
F.  Barrow.  It  appeared  that  the  flour,  etc.,  which  was  supplied 
under  this  agreement,  did  not  belong  to  John  W.  Barns,  but  the 
firm  of  John  W.  Barns  &  Co.,  of  which  firm  plaintiffs  were  the 
individual  members,  and  that  there  was  a  balance  of  $600.51  due 
said  firm  from  E.  F.  Barrow  at  the  commencement  of  the  action. 
It  did  not  appear  that  either  E.  F.  Barrow  or  the  defendant 
knew  that  the  goods  supplied  belonged  to  the  copartnership. 

The  referee  held  as  a  matter  of  law  that  the  plaintiffs  could 
not  recover  against  the  defendant  on  the  contract  of  guaranty. 

DWIGHT,  C.  The  single  question  in  this  case  is,  whether, 
under  a  written  contract  of  guaranty,  purporting  to  be  made 
with  a  particular  person,  a  firm,  of  which  that  person  is  a 
member,  can  recover  the  value  of  goods  supplied  to  the  person 
whose  solvency  was  guaranteed,  there  being  no  evidence  that 
the  guarantor  was  made  acquainted  with  the  fact  that  the  goods 
were  to  be  supplied  by  the  firm. 

On  the  face  of  this  contract,  it  is  plain  that  no  one  could  act 
upon  it,  except  the  persons  named  in  it.  The  plaintiffs  maintain 
that  they  can  go  behind  the  apparent  transaction  and  show  that 
they  supplied  the  goods  instead  of  John  "W".  Barns.  This 
claim  is  not  one  between  the  person  who  received  the  consider- 
ation and  the  plaintiffs.  Were  they  seeking  to  collect  of  Ed- 
ward F.  Barrow,  the  purchaser,  it  might  be  claimed  that  the  case, 
was  simply  one  of  an  undisclosed  principal  in  the  law  of 
agency;  and  that  parol  evidence  might  be  offered  to  show  that 
John  W.  Barns  was  acting  for  the  firm.  This  is  the  principle 
of  such  eases  as  Alexander  v.  Barker  (2  Cromp.  &  Jer.  134) ; 
Cothay  v.  Fennell  (10  B.  &  C.  671),  cited  in  the  court  below. 
y  In  Alexander  v.  Barker,  there  was  a  loan  of  money  direct  to 
the  defendant,  which  was  supplied  by  the  plaintiff  in  his  own 
name,  though  it  belonged  to  a  firm  of  which  he  was  a  member. 
The  court  held  that  the  firm  might  recover,  as  it  was  their 
money.  There  was  no  element  of  guarantee  in  the  case.  In 
Cothay  v.  Fennell,  three  persons  agreed  to  be  jointly  interested 
in  the  purchase  of  goods,  which  was,  however,  made  in  the 
name  of  one  of  them;  it  was  held  that  all  might  recover  for 
breach  of  contract.  • 

The  present  case  differs  in  an  essential  particular  from  those 
just  cited.  It  is  a  case  of  pure  guaranty;  a  contract  which  is 
said  to  be  strictissimi  juris;  and  one  in  which  the  guarantor  is 


BARNS  v.  BARROW.  73 

entitled  to  a  full  disclosure  of  every. point  which  would  be  likely 
to  bear  upon  his  disposition  to  enter  into  it.  The  consideration 
ex  the  contract  does  not  enure  to  him,  but  to  another.  He 
assumes  the  burden  of  a  contract  without  sharing  in  its  benefits. 
He  has  a  right  to  prescribe  the  exact  terms  upon  which  he  will 
enter  into  the  obligation,  and  to  insist  on  his  discharge  in  case 
those  terms  are  not  observed.  It  is  not  a  question  whether  he 
is  harmed  by  a  deviation  to  which  he  has  not  assented.  He  may 
plant  himself  upon  the  technical  objection,  this  is  not  my  con- 
tract, non  in  haec  foedera  veni.  Accordingly,  in  the  present 
case,  he  may  say:  "I  contracted  with  John  W.  Barns,  and  will 
not  be  liable  for  supplies  furnished  by  a  firm,  though  he  may 
be  a  member  of  it." 

The  authorities,  when  carefully  considered,  sustain  this  con- 
clusion. Mr.  Burge,  in  his  work  on  Suretyship  (chap.  3),  dis- 
cusses this  subject  at  length.  He  says:  "The  contract  of  surety- 
ship is  to  be  construed  strictly ;  that  is,  the  obligation  is  not  to  be 
extended  to  any  other  subject,  to  any  other  person,  or  to  any 
other  period  of  time  than  is  expressed,  or  necessarily  included 
in  it.  It  was  in  the  power  of  the  person  accepting  the  surety  to 
have  expressed,  and  it  is  his  own  fault  if  he  has  not  included 
the  case  to  which  he  seeks  to  extend  the  liability  of  the  surety" 
(p.  40).  This  last  remark  is  peculiarly  applicable  to  the  case  at 
bar,  as  Barns,  with  whom  the  defendant  contracted,  knew  who 
the  members  of  his  firm  were,  and  could  readily  have  named 
them  if  he  had  seen  fit.  In  the  Roman  law,  the  rule  now  under 
consideration  assumes  the  form  of  a  maxim:  "An  agree- 
ment of  guarantee  made  with  one  person  cannot  be  extended  to 
another  person."  Some  of  the  English  cases  which  turn  upon 
this  principle  are:  Lord  Arlington  v.  Merricke  (2  Saund.  414) ; 
Wright  v.  Russell  (2  W.  Black.  934) ;  Myers  v.  Edge  (7  T.  R. 
254) ;  Barker  v.  Parker  (1  id.  287)  ;  Simson  v.  Cooke  (1  Bing. 
452) ;  Strange  v.  Lee  (3  East,  484) ;  Spies  v.  Houston  (4  Bligh 
(N.  S.)  215) ;  Dry  v.  Davy  (10  Ad.  &  Ell.  30).  The  rules  gov- 
erning letters  of  credit  depend  upon  the  same  doctrine.  The 
whole  subject  is  well  illustrated  by  the  case  of  Philip  v.  Melville 
(cited  in  Burge  on  Suretyship,  p.  68).  In  that  case,  Melville 
recommended  one  Yetts  to  Dusie  for  a  supply  of  spirits,  and 
guaranteeing  the  payment.  Dusie  wrote  on  the  back  of  the 
letter  of  credit  an  assurance  to  C.  &  J.  Philip,  plaintiffs,  that, 
not  having  the  article  himself,  he  had  sent  Yetts  with  the  letter 


74  CONSTRUCTION  OF  CONTRACT. 

of  credit,  on  which  they  might  rely.  They  having  furnished  the 
spirits  sued  Melville.  The  court  held,  that  a  letter  of  credit 
addressed  to  a  particular  person  is  limited  to  him,  and  that 
the  writer  must  be  held  to  have  granted  it  hi  reliance  on  his 
prudence  and  discretion  in  acting  upon  it;  that  such  a  letter 
contains  no  general  power  to  interpose  the  writer's  credit,  or 
transmit  his  guarantee;  and  that'  this  is  specially  to  be  observed 
where  the  general  terms  of  the  letter  make  the  personal  limita- 
tion the  only  restraint  on  the  responsibility  of  the  writer.  The 
same  principle  is  stated  in  Union  Bank  v.  Coster  (3  N.  Y.  203) ; 
Birckhead  v.  Brown  (5  Hill,  634;  S.  C.,  2  Den.  375) ;  Walsh  v. 
Bailie  (10  J.  R.  180) ;  Bobbins  v.  Bingham  (4  id.  476) ;  Pen- 
oyer  v.  Watson  (16  id.  100).  In  Walsh  v.  Bailie,  A.  gave  a  let- 
ter^of^credit  to  B.,  addressed  to  C.  in  Albany,  requesting  the  lat- 
ter to  deliver  goods  to  B.  C.  instead  of  delivering  the  goods 
himself,  gave  B.  a  letter  to  D.,  in  Geneva,  who  supplied  the 
goods.  It  was  held  that  the  engagement  of  A.  to  C.  did  not  make 
him  answerable  for  goods  furnished  by  any  other  person,  on  the 
ground  that  surety  is  not  answerable  beyond  the  scope  of  his 
engagement.  In  Penoyer  v.  Watson,  the  facts  were,  that  a  letter 
of  credit,  in  favor  of  A.,  was  addressed  to  P.  &  Co.  That  firm 
having  dissolved  their  partnership,  P.  acted  on  the  letter.  It 
was  held  that  the  guarantor  was  not  liable. 

It  is  conceded  that  none  of  the  cases  cited  cover  the  case  at  bar 
in  its  precise  terms.  The  theory  on  which  they  proceed,  how- 
ever, embraces  it.  As  stated  by  SPENCER,  J.,  in  Penoyer  v.  Wat- 
son, the  surety  cannot  be  bound  beyond  the  scope  of  his  engage- 
ment. The  sole  question  is :  To  what  did  he  agree  ?  And  if  he 
contracted  with  one  person,  as  he  had  reason  to  suppose,  no 
other  person  can  be  substituted  in  the  place  of  the  apparent  con- 
tractee.  On  like  grounds  no  person  can  be  added  to  or  sub- 
tracted from  the  apparent  number.  The  words  of  the  written  in- 
strument point  out  the  person  with  whom  he  contracted  and 
measure  his  liability,  unless  it  be  made  to  appear  affirmatively, 
by  legitimate  evidence,  that  the  guarantor  intended  to  embrace 
others. 

The  court  below,  in  holding  the  surety  liable,  laid  stress  on  an 
extract  from  a  section  in  Story  on  Partnership,  the  effect  of 
which,  we  think  was  misapprehended.  The  passage  is  as  fol- 
fows:  "If  a  contract  of  guarantee  should  be  entered  into  ap- 
parently with  one  partner,  but  in  reality  it  should  be  intended 


BARNS  v.  BARROW.  75 

for  the  indemnity  of  the  firm,  for  advances  to  be  made  by  the 
firm,  an  action  might  be  maintained  by  all  the  partners,  as  upon 
a  joint  contract  therewith,  although  the  written  papers  con- 
taming  the  guarantee  should  be  addressed  to  one  partner,  and 
he  alone  should  conduct  the  negotiation;"  citing  Garrett  v.  _ 
Handlev  (3  K  &  C.  463;  S.  C.,  4  id.  664).  It  will  be  observed 

Justice  STORY  makes  it  a  part  of  his  supposition  that  the  guaran- 

tee  is  intended  for  the  infot^nity  of  the  firm,  though  apparent- 
ly  entered  into  toward  one  person.  In  the  case  cited  by  him 
evidence  was  produced  at  the  trial  which  established  that  the 
guarantee  was  intended  to  be  given  for  the  joint  benefit  of  the 
firm  and  not  for  that  of  the  member  solely  to  whom  it  was  ad- 
dressed. This  evidence  of  special  facts  took  the  case  out  of  the 
general  rule,  which  would  have  otherwise  governed  it. 

The  case  should  be  stated  with  some  particularity.  An  action 
was  first  brought  by  Garrett,  alone,  against  Handley.  It  ap- 
peared at  the  trial  that  the  loan,  on  account  of  which  the  guaran- 
tee was  given,  did  not  belong  to  Garrett  solely,  but  to  himself 
in  conjunction  with  two  partners,  and  he  was  non-suited.  A 
second  action  was  brought  by  the  partners,  though  the  guarantee 
was  addressed  to  Garrett  alone.  The  plaintiffs,  to  show  right  of 
action,  produced  a  correspondence  between  Bodenham,  one  of 
the  partners,  and  the  defendant,  for  the  purpose  of  showing 
that  the  guarantee,  though  in  terms  given  to  Garrett,  was  in- 
tended for  the  benefit  of  the  firm.  On  the  part  of  the  defendant 
it  was  urged,  first,  that  the  correspondence  did  not  prove  that 
the  guarantee  was  intended  for  the  benefit  of  the  firm ;  and 
second,  assuming  that  it  did,  still,  that  the  action  ought  to  have 
been  brought  in  the  name  of  Garrett,  to  whom  the  guarantee  was 
in  terms  given.  The  court  directed  the  case  to  stand  over  in 
order  to  read  the  correspondence.  At  a  later  day  the  judges 
said  that  they  had  perused  the  correspondence,  and  thought  that 
it  sufficiently  appeared  that  the  guarantee  was  intended  for  the 
benefit  of  the  firm  and  not  for  Garrett  alone,  and  that  being  so, 
they  were  of  opinion  that  the  action  was  properly  brought  in 
the  name  of  the  parties  for  whose  benefit  the  contract  was  en- 
tered into.  The  reporter  states  the  point  of  the  decision  to  be, 
that  an  action  may  be  maintained  by  the  several  partners  of  a 
firm,  upon  a  guarantee  given  to  one  of  them,  if  there  be  evidence 
that  it  was  given  for  the  benefit  of  all.  The  same  principle  waT~ 
applied  to  the  decision  of  Bateman  v.  Phillips  (15  East,  272). 


76  CONSTRUCTION  OF  CONTRACT. 

In  that  case  a  letter  of  guarantee  was  addressed  to  an  attorney, 
and  parol  evidence  was  offered  to  show  that  it  was  intended  for 
his  client.  Lord  Ellenborough  said  that  the  parol  evidence  did 
not  go  to  extend  the  terms  of  the  agreement  in  writing ;  it  only 
went  to  show  that  the  letter  was  ^ddrpssp^  tn  TiiTq,  ffi  the  attorney 
for  the  plaintiff  and  not  as  the  principal  and  creditor  of  the 
"cTebtTor" These  cases  show  in  the  clearest  manner  that  the  mere 
addressing  of  a  guarantee  to  one,  in  the  absence  of  parol  evi- 
dence of  intention,  will  not  permit  another  to  recover  upon  it. 

That  this  was  the  interpretation  put  upon  these  cases  by  Judge 
STORY  is  plainly  shown  by  the  language  used  by  him  in  section 
247  of  the  work  already  cited,  where  he  remarks :  "It  never  can 
be  said  with  truth  or  justice  that  a  guarantee  or  suretyship  for 
advances  to  be  made  by  A.,  B.  &  C.  does  properly  extend  to  any 
advances  made  by  A.  or  B.,  or  by  A.,  B.  &  D. ;  and  therefore 
the  guarantor  or  surety  may  with  all  good  faith  and  correct- 
ness say,  non  in  haec  foedera  veni,"  citing,  with  approval, 
Strange  v.  Lee  (3  East,  484,  490).  In  that  case  the  guarantee 
reciting  that  B.  intended  to  open  a  bank  account  with  C.,  D.  & 
E.,  as  his  bankers,  was  conditioned  for  payment  to  them  of  all 
sums  from  time  to  time  advanced  to  B.  at  the  said  banking-house. 
It  was  held  that  on  C.'s  death  such  obligation  ceased,  and  did 
not  cover  future  advances  made  after  another  partner  was  taken 
in.  Lord  Ellenborough  said:  "The  court  will  no  doubt  con- 
strue the  words  of  the  obligation  according  to  the  intent  of  the 
parties,  to  be  collected  from  them ;  but  the  question  is  what  that 
intent  was.  The  defendant's  obligation  is,  to  pay  all  sums  due 
to  them,  on  account  of  their  advances  to  Blyth.  Now,  who  are 
'them' but  the  persons  before  named?  *  *  *  The  words  will 
admit  of  no  other  meaning.  *  *  *  We  are  desired  to  con- 
strue our  obligation  to  be  answerable  for  money  due  to  them 
(certain  partners  having  been  before  named),  to  mean  money 
due  to  any  part  of  them;  a  construction  which  would  be  con- 
trary to  the  words  of  the  instrument."  (Pp.  490,  491.)  The 
only  case  appearing  to  lend  color  to  the  plaintiff's  claim  is  Wal- 
ton v.  Dodson  (3  Car.  &  Payne,  162).'  The  case  is  briefly  re- 
ported at  nisi  prius,  and  was  decided  shortly  after  Garrett  v. 
Handley  (supra).  It  is  probably  not  inconsistent  with  it,  but 
if  so  must  be  disregarded. 

In  the  case  at  bar  the  defendant  agreed  that  Edward  F.  Bar- 
row should  account  to  John  W.  Barns  for  goods  received,  and 


WARREY  v.  FORST.  77 

should  sell  on  commission  for  him,  and  be  accountable  for  the 
proceeds,  after  deducting  commissions  to  be  allowed  him  by 
Barns.  It  is  not  possible,  on  any  principle  of  construction  es- 
tablished by  the  commentators  and  the  cases  cited,  to  add  to  the 
name  of  John  W.  Barns  those  of  William  and  Charles  Barns,  his 
copartners,  it  not  being  made  to  appear  that  the  defendant  knew, 
at  the  time  of  the  execution  of  the  contract,  that  it  was  entered 
into  by  John  W.  Barns,  not  for  himself  merely  but  also  for  his 
copartners. 

The  order  of  the  General  Term  should  be  reversed  and  the 
judgment  entered  upon  the  report  of  the  referee  should  be  af- 
firmed, with  costs. 

All  concur. 

Order  reversed,  and  judgment  accordingly. 


CHAPTER  III. 

PARTIES  TO  CONTRACT. 

a.  At  common  law  a  married  woman  not  being  able  to  contract 
of  course  could  not  become  a  surety  and  can  do  so  now  only 
when  and  to  the  extent  that  the  statutes  give  her  the  power. 

WARREY  v.  FORST.     1885. 
102  Ind.  205;  26  N.  E.  Rep.  87. 

Commissioners'  decision.  Appeal  from  circuit  court,  Noble 
county. 

BICKNELL,  C.  C.  The  appellee  brought  this  suit  against  the 
appellant  to  cancel  her  note  and  mortgage  held  by  him.  The 
complaint  alleged  that  the  plaintiff's  husband  owed  the  de- 
fendant $2,122,  and  that  she  without  any  consideration,  at  the 
request  of  the  defendant,  and  as  surety  of  her  husband,  joined 
her  husband  in  executing  said  note,  and,  to  secure  the  payment 
thereof,  joined  her  husband  in  executing  said  mortgage  upon  her 
own  separate  land.  The  cause  was  tried  by  the  court  upon 
the  complaint  and  the  general  denial.  The  court,  at  the  re- 
quest of  the  plaintiff,  found  the  facts  specially,  in  substance,  as 
follows:  (1)  That  on  April  29,  1882,  the  plaintiff  was,  and 
still  is,  the  wife  of  Jacob  Forst,  and  on  that  day  had,  and  still 


78  PARTIES   TO  CONTRACT. 

has,  the  possession  and  legal  title  of  said  mortgaged  land;  (2) 
that  on  said  day  the  plaintiff's  husband  owed  the  defendant 
$2,172.20,  his  own  separate  debt;  (3)  that  on  said  day  defendant 
verily  believed  that  he  had  a  valid  claim  against  the  plaintiff  to 
subject  said  land  to  the  payment  of  said  debt,  on  the  ground  that, 
as  he  believed,  said  Jacob  Forst,  while  so  indebted  to  him,  had 
bought  and  paid  for  said  land,  and  had  procured  the  conveyance 
thereof  to  the  plaintiff,  without  consideration  therefor,  and  with 
intent  to  defraud  his  creditors,  and  especially  said  defendant, 
and  that  defendant,  so  believing,  had  employed  an  attorney  to 
commence  an  action  in  the  Elkhart  circuit  court  to  subject  said 
land  to  said  claim.  (4)  That  on  said  day  the  plaintiff,  being 
informed  of  defendant's  purpose  to  commence  such  suit,  execut- 
ed said  note  and  mortgage  for  the  purpose  of  avoiding  such 
threatened  litigation,  and  for  the  purpose  of  cancelling  and  pay- 
ing her  husband's  said  indebtedness,  there  being  no  other  con- 
sideration therefor,  and  that  said  mortgage  was  duly  recorded  in 
Elkhart  county  on  May  1,  1882.  Upon  the  foregoing  facts,  the 
court  stated  the  following  conclusions  of  law:  (1)  That  the  con- 
tract of  said  plaintiff,  in  the  execution  of  said  note  and  mort- 
gage, was  a  contract  of  suretyship,  and  that  she  executed  both 
said  note  and  mortgage  as  surety  for  said  Jacob;  (2)  that  said 
contracts  of  suretyship  were  and  are  void  as  to  her,  and  that  she 
is  entitled  to  a  decree  declaring  the  cancellation  of  said  note  and 
said  mortgage  as  to  her.  The  defendant  excepted  to  said  con- 
clusions of  law,  and  excepted  specially  to  the  conclusion  that 
said  mortgage  was  void  as  to  said  plaintiff.  The  defendant  then 
moved  for  judgment  in  his  favor  on  the  special  findings.  This 
motion  was  overruled.  The  defendant  also  moved  for  judgment 
in  his  favor  as  to  the  said  mortgage,  and  that  the  same  be  de- 
clared valid  and  binding  on  the  plaintiff,  and  this  motion  was 
overruled.  The  court  then  rendered  judgment  for  the  plaintiff 
in  accordance  with  its  conclusions  of  law.  The  defendant  moved 
to  modify  the  judgment,  so  as  to  declare  said  mortgage  valid, 
and  this  motion  was  overruled.  The  defendant  appealed  from 
the  judgment.  He  assigns  several  errors.  We  will  consider 
those  only  which  are  discussed  in  his  brief.  The  principal  ques- 
tions discussed  arise  upon  the  following  specifications  of  error: 
(9)  The  court  erred  in  its  conclusions  of  law.  (10)  The  court 
erred  in  overruling  the  appellant's  motion  for  judgment  on  the 
special  findings.  (11)  The  court  erred  in  overruling  the  appel- 


WARREY  v.  FORST.  79 

lant's  motion  for  a  judgment  affirming  the  validity  of  the  mort- 
gage. (14)  The  court  erred  in  refusing  to  modify  the  judg- 
ment so  as  to  affirm  the  validity  of  the  mortgage. 

Under  an  exception  to  conclusions  of  law,  the  facts  specially 
found  are  deemed  to  have  been  correctly  found.  Dodge  v.  Pope, 
93  Ind,  480.  In  the  present  case  the  special  findings  show  that 
the  plaintiff 's  husband  was  the  debtor  of  the  defendant,  and  that 
the  plaintiff,  for  the  purpose  of  avoiding  a  threatened  litigation, 
and  for  the  purpose  of  paying  and  cancelling  her  husband's  in- 
debtedness, executed  the  note  and  mortgage  in  controversy.  She 
thereby  undertook  to  become  her  husband's  surety.  The  finding 
shows  that  she  did  this  on  the  29th  day  of  April,  1882.  At  that 
time  the  statutes  of  1881  were  in  force,  and  section  4  of  the  act 
of  April  16,  1881,  entitled  "An  act  concerning  husband  and 
wife"  (Acts  1881,  p.  528,  Rev.  St.  1881,  §5119),  is  as  follows: 
"A  married  woman  shall  not  enter  into  any  contract  of  surety- 
ship, whether  as  indorser,  guarantor,  or  in  any  other  manner; 
and  such  contract,  as  to  her,  shall  be  void."  This  section  for- 
bids a  married  woman  to  become  a  surety  for  anybody.  She  may 
pay  her  husband's  debts,  but  not  by  becoming  surety  therefor. 
It  was  held  by  this  court,  in  Allen  v.  Davis,  101  Ind.  187,  that 
where  a  married  woman  signs  a  note  of  her  husband  as  surety, 
and  they  join  in  a  mortgage  of  the  wife's  land  to  secure  the 
payment  of  the  note,  she  is  not  liable  on  either  note  or  mortgage, 
the  promise  in  the  mortgage  being  no  more  binding  on  her  than 
the  promise  in  the  note.  To  the  same  effect  is  the  more  recent 
case  of  Dodge  v.  Kinzy,  101  Ind.  102. 

But  the  appellant  claims  that  the  conclusions  of  law  are 
wrong,  because  the  finding  shows  that  the  note  and  mortgage 
were  executed  not  merely  for  the  purpose  of  cancelling  and  pay- 
ing the  husband's  debts,  but  also  for  the  purpose  of  avoiding  a 
threatened  litigation.  The  finding  is  that  the  defendant  be- 
lieved that  Jacob  Forst,  while  indebted  to  him,  had  bought  and 
paid  for  the  mortgaged  land,  and  had  procured  its  conveyance 
to  his  wife,  the  plaintiff,  without  consideration,  and  with  intent 
to  defraud  his  creditors  and  the  defendant;  and  that  the  de- 
fendant also  believed  that  he  had  a  valid  claim  against  the 
plaintiff  to  reach  said  land,  and  subject  it  to  the  payment  of 
said  Jacob's  indebtedness,  and  had  employed  an  attorney  to 
bring  suit  for  that  purpose,  and  had  notified  the  plaintiff 
thereof,  and  that  the  plaintiff  for  the  purpose  of  avoiding  said 


80  PARTIES  TO  CONTRACT. 

threatened  litigation,  and  for  the  purpose  of  discharging  her 
husband's  debts,  executed  the  note  and  mortgage.  The  appel- 
lant claims  that  the  finding  shows  "a  legal  compromise  of  a 
doubtful  claim  or  right,"  and  that,  therefore,  there  was  a  suf- 
ficient consideration  moving  from  appellant  to  appellee,  so  that 
she  was,  in  fact,  not  surety  but  principal  in  the  execution  of  the 
note  and  mortgage.  It  was  held  in  Fitzpatrick  v.  Papa,  89  Ind. 
17,  that  "a  married  woman  who  executes  a  mortgage  to  secure 
the  release  of  a  valid  lien  cannot  escape  the  consequences  of  her 
act  upon  the  ground  that  the  mortgage  was  executed  to  secure 
the  debt  of  the  husband.  The  benefit  moves  to  her,  for  it  re- 
lieves her  property  from  a  burden."  In  the  present  case,  how- 
ever, there  was  no  valid  lien  made  to  appear.  The  finding  does 
not  show  the  compromise  of  any  actually  existing  liability.  It 
states  only  the  belief  of  the  defendant  that  he  had  a  claim,  with- 
out any  fact  upon  which  such  belief  is  founded.  ft_i&jQ 


that  there  was  any  valid  claim  against  the  plaintiff.  It  is  not 
found  that  Jacob  Forst  was  insolvent  when  the  conveyance  was 
made  to  his  wife,  the  plaintiff,  nor  that  the  property  was  bought 
and  paid  for  by  him.  It  is  not  even  found  that  the  conveyance 
of  the  land  to  Mrs.  Forst  was  caused  to  be  made  by  her  husband, 
nor  that  she  paid  nothing  for  it.  The  finding  merely  states  the 
defendant's  belief  that  such  was  the  fact,  without  anything  to 
warrant  such  belief.  There  is  no  fact  found  upon  which  even  a 
doubtful  claim  could  arise  in  favor  of  the  defendant  against  the 
plaintiff.  A  threatened  litigation,  founded  merely  on  the  de- 
fendant 's  belief,  without  any  fact  to  support  the  belief,  amounts 
to  nothing,  and  the  purpose  to  avoid  such  a  litigation  was  no 
consideration  for  the  plaintiff's  promises.  In  Jarvis  v.  Sutton, 
3  Ind.  289,  this  court  said:  "It  is  true  a  compromise  of  doubt- 
ful claims  may  be  sufficient  to  found  a  consideration  upon,  but 
in  such  cases  there  must  be  a  surrender  of  some  legal  benefit 
which  the  other  party  might  have  retained.  *  *  *  A  prom- 
ise to  give  something  for  the  compromise  of  a  claim,  about  which 
there  is  merely  a  dispute  and  controversy,  and  for  which  there 
.^A  is  no  legal  foundation  whatever,  is  not  sufficient  to  sustain  a  suit 
at  law."  In  the  case  of  Wade  v.  Simeon,  2  C.  B.  548,  the  decla- 
ration alleged  that  the  plaintiff  had  commenced  an  action 
against  the  defendant  to  recover  certain  moneys,  and  that  in 
consideration  that  the  plaintiff  would  forbear  to  proceed  in  that 
action  until  a  certain  day,  the  defendant  promised  that  he  would 


WARREY  v.  FORST.  81 

on  that  day  pay  the  amount,  but  he  made  default,  etc.  Plea, 
that  the  plaintiff  never  had  any  cause  of  action  against  the  de- 
fendant in  said  action  so  commenced,  which  he,  the  plaintiff,  at 
the  commencement  of  said  action,  and  thence  until  and  at  the 
time  of  the  making  of  the  promise,  well  knew.  It  was  held,  on 
demurrer,  that  this  plea  was  sufficient.  So,  in  Edwards  v. 
Baugh,  11  Mees.  &  W.  641,  the  declaration  alleged  the  exist- 
ence of  disputes  and  controversies  between  the  parties  as  to 
whether  or  not  the  defendant  was  indebted  to  the  plaintiff  in 
£173  for  money  lent,  and  that  the  defendant,  in  consideration  of 
the  plaintiff's  promise  not  to  sue  him  at  any  time  therefor,  and 
to  accept  £100  in  full  satisfaction,  promised  the  plaintiff  to  pay 
him  the  sum  of  £100  within  a  reasonable  time.  The  court  held 
that  the  declaration  was  bad,  as  not  showing  a  sufficient  con- 
sideration for  the  promise,  there  being  no  allegation  of  any  debt 
actually  due,  but  merely  that  a  dispute  and  controversy  existed 
respecting  a  claim  which  defendant  believed  to  exist,  but  the 
actual  existence  of  which  was  not  averred.  It  is  very  clear  that, 
if  the  finding  in  the  present  case  had  been  merely  that  the  wife 
executed  the  note  and  mortgage  to  pay  her  husband's  debt,  she 
would  not  have  been  liable  thereupon.  Allen  v.  Davis,  supra, 
and  Dodge  v.  Kinzy,  supra. 

And  it  may  be  conceded  that  if  the  finding  had  shown  that  the 
defendant  had  any  lien  on  the  wife's  land,  or  if  any  facts  had 
been  stated  in  the  finding  showing  that  the  defendant  had  any 
valid  claim  which  might  be  enforced  against  the  wife's  interest 
in  the  land,  in  such  a  case  the  wife  might  be  considered  the  prin- 
cipal, and  the  compromise  of  such  a  valid  claim  against  her  own 
land  would  be  a  sufficient  consideration  to  bind  her  as  principal, 
although  it  was  also  a  part  of  the  consideration  to  secure  her 
husband's  debt.  But  the  finding  under  consideration  states 
nothing  at  all  as  to  the  existence  of  such  lien  or  claim  against 
the  wife's  land.  The  statement  is  simply  that  the  "defendant 
believed  he  had  a  valid  claim  against  the  plaintiff,  and  was 
threatening  to  bring  suit  upon  it,  and  that,  for  the  purpose  of 
avoiding  such  threatened  litigation,  the  note  and  mortgage  were 
executed."  If  A  were  suing  B  on  any  verbal  promise,  it  would 
not  be  sufficient  to  allege  in  the  complaint  that  A  believed  he  had 
a  valid  claim  against  B,  and  was  threatening  to  sue  him,  and 
that  thereupon,  "for  the  purpose  of  avoiding  such  threatened 
litigation,"  B  promised;  such  a  complaint  would  be  bad  because, 

6 


82  PARTIES  TO  CONTRACT. 

instead  of  stating  a  consideration,  it  would  merely  state  a  mo- 
tive. The  complaint,  to  be  good  in  such  a  case,  must  state  an 
actual  indebtedness  of  B  to  -A,  or  facts  showing  a  valid  claim, 
and  then  a  compromise  thereof  as  the  consideration  of  the  prom- 
ise sued  on.  So  here,  so  far  as  the  finding:  shows  that  the  note 
and  mortgage  were  executed  for  the  purpose  of  avoiding  a 
threatened  litigation  of  a  supposed  claim,  not  found  to  have  any 
real  existence,  it  does  not  state  any  consideration.  It  simply 
states  a  motive.  In  Standley  v.  Insurance  Co.,  95  Ind.  254, 
ELLIOTT,  J.,  said:  "There  is  an  essential  difference  between  the 
motive  which  induces  a  party  to  enter  into  a  contract,  and  the 
consideration  yielded  for  its  support.  'Motive,-'  said  an  English 
judge,  'is  not  the  same  thing  with  consideration,'  Thomas  v. 
Thomas,  2  Q.  B.  851.  In  Philpot  v.  Gruninger,  14  Wall.  570,  it 
was  said:  'It  is,  however,  not  to  be  doubted  that  there  is  a  clear 
distinction  sometimes  between  the  motive  that  may  induce  to  en- 
tering into  a  contract,  and  the  consideration  of  the  contract. 
Nothing  is  consideration  that  is  not  regarded  as  such  by  both 
parties.'  To  a  like  import  is  the  decision  in  our  own  court  of 
Clark  v.  Continental,  etc.,  Co.,  57  Ind.  135,  where  it  was  said: 
'The  motive  prompting  one  to  execute  a  contract,  and  the  con- 
sideration of  the  contract,  are  entirely  different  things.'  The 
motive  which  influenced  the  appellant  to  take  out  the  policy  was 
the  desire  to  secure  the  loan,  but  this  was  not  the  consideration 
on  which  the  contract  of  insurance  rested.  On  the  other  hand, 
the  desire  to  secure  premiums  on  the  policy  influenced  the  ap- 
pellee to  make  the  loan,  but  this  was  not  the  consideration  given 
for  the  note  and  mortgage.  That  consideration  was  the  loan  of 
money."  The  finding  does  not  use  the  word  "consideration." 
It  states  that  the  note  and  mortgage  were  executed  "for  the 
purpose  of,"  but,  if  the  word  "purpose"  means  here  the  same 
as  "consideration,"  then  the  finding  states  two  considerations, 
one  of  them  illegal,  and  the  other  insufficient.  We  think  there 
was  no  error  in  the  conclusions  of  law,  nor  in  overruling  tho 
plaintiff's  motions  for  judgment  upon  the  findings,  and  for  the 
modification  of  the  judgment.  The  plaintiff  really  executed  the 
note  and  mortgage  to  secure  her  husband's  debt,  and  both  note 
and  mortgage  were  void  as  to  her,  under  section  5119,  Rev.  St. 
1881.  As  to  the  motion  for  a  new  trial,  it  is  sufficient  to  say  that 
there  was  evidence  tending  to  sustain  the  findings.  Therefore, 


WARREY  v.  FORST.  83 

under  the  well-known  rule  of  this  court,  they  cannot  be  dis- 
turbed. The  findings  were  not  contrary  to  law. 

The  appellant  says  there  was  error  in  sustaining  the  demurrer 
to  the  first  paragraph  of  his  answer.  That  paragraph  averred 
that  Jacob  Forst,  the  appellee's  husband,  was  indebted  to  the 
defendant,  and  while  so  indebted  bought  and  paid  for  the  mort- 
gaged land,  and  had  it  conveyed  to  the  plaintiff,  who  paid  noth- 
ing for  it ;  that  said  Jacob  thereby  intended  to  defraud  his  cred- 
itors and  the  defendant,  and  that  such  fraudulent  intention  was 
at  the  time  well  known  to  the  plaintiff;  that,  since  the  title 
was  thus  vested  in  his  wife,  said  Jacob  has  not  had  any  property 
subject  to  execution.  There  was  no  error  in  sustaining  the  de- 
murrer to  this  paragraph  of  the  answer.  The  paragraph  con- 
fesses that  the  plaintiff  was,  as  alleged  in  the  complaint,  -  the 
owner  of  the  land,  and  mortgaged  it  as  surety  to  secure  her  hus- 
band's  debt.  It  contains  nothing  in  avoidance.  It  seeks  argu- 
mentatively  to  deny  the  complaint,  by  stating  that  the  plaintiff 
has  no  title  to  the  land  because  of  fraud.  If  this  could  be 
shown  at  all,  it  would  be  admissible  under  the  general  denial, 
but  it  could  not  be  given  in  evidence  by  the  defendant  against 
the  plaintiff  under  any  form  of  pleading.  The  appellant  says 
in  his  brief  that  the  same  question  arises  on  the  ruling  on  the 
demurrer  to  the  first  paragraph  of  the  answer,  and  on  the  ex- 
clusion of  evidence  of  the  matters  therein  set  forth.  The  ex- 
cluded evidence,  however,  sought  to  impeach  the  plaintiff's  title 
for  fraud,  the  defendant  having  recognized  her  title  by  taking  a 
mortgage  with  notice.  Conklin  v.  Smith,  7  Ind.  107 ;  Rennick  v. 
Bank,  8  Ohio,  529 ;  Fitch  v.  Baldwin,  17  Johns.  161.  The  appel- 
lant says:  "I  admit  that  we  are  estopped  from  attacking  her 
title  on  account  of  fraud,  for  the  purpose  of  disturbing  it,  be- 
cause, with  knowledge  of  the  fraud,  we  have  treated  with  her 
concerning  the  subject-matter  of  it";  but  he  claims  a  right  to 
show  the  fraud  for  the  purpose  of  proving  that  she  was  a  prin- 
cipal, and  not  a  surety,  in  the  execution  of  the  note  and  mort- 
gage. But  we  think  that  the  defendant  is  estopped  from  prov- 
ing the  fraud,  in  this  action,  as  against  the  plaintiff,  for  any 
purpose.  There  was  no  error  in  excluding  the  testimony  now 
under  consideration.  We  have  now  examined  all  the  matters  of 
alleged  error  discussed  in  the  appellant 's  brief.  We  find  no  error 
in  the  record.  The  judgment  ought  to  be  affirmed. 

PER    CURIAM.     It   is   therefore   ordered,    on   the   foregoing 


84  PARTIES   TO  CONTRACT. 

opinion,  that  the  judgment  of  the  court  below  be,  and  the  same 
is  hereby,  in  all  things  affirmed,  at  the  costs  of  the  appellant. 

MITCHELL,  C.  J.,  took  no  part  in  the  determination  of  this 
case. 


HABENICHT  v.  RAWLS.    1885. 
24  8.  C.  461;  58  Am.  Rep.  268. 

Action  on  promissory  notes.  The  opinion  states  the  facts.  The 
defendant  had  judgment  below. 

MclvER,  J.  On  January  24,  1883,  the  defendants,  Rawls  and 
"Wilhalf,  made  the  notes  sued  on  payable  to  the  plaintiff,  and 
before  their  delivery  to  him  they  were  indorsed  by  the  other  two 
defendants,  Jennie  Agnew  then  and  now  being  a  married 
woman.  The  notes  were  given  in  discharge  of  a  lien  held  by  the 
plaintiff  on  the  stock  of  goods  belonging  to  Rawls  and  Wilhalf. 
Mrs.  Agnew  had  no  interest  in  the  stock  of  goods  and  received 
no  consideration  for  her  indorsement.  She  was  therefore  prac- 
tically a  mere  surety  for  the  debt  of  another ;  and  the  sole  ques- 
tion raised  by  this  appeal  is  whether  she,  being  a  married  woman, 
was  capable  of  making  such  a  contract. 

At  common  law  there  is  no  doubt  that  she  had  no  such  ca- 
pacity, and  therefore  the  inquiry  is  whether  she  has,  by  statute, 
been  endowed  with  the  power  to  make  such  a  contract.  That  the 
act  of  1870,  incorporated  in  chapter  C  of  the  general  statutes  of 
1872,  page  482,  section  3,  did  confer  upon  a  married  woman  the 
power  to  make  any  contract  which  a  feme  sole  could  make,  even 
to  the  extent  of  becoming  surety  for  her  husband,  was  settled 
by  the  cases  of  Pelzer  v.  Campbell,  15  S.  C.  581,  and  Clinkscales 
v.  Hall,  15  S.  C.  602.  But  at  the  very  next  session  of  the  general 
assembly,  which  convened  only  a  very  few  days  after  the  de- 
cisions in  the  eases  just  recited  were  rendered,  the  law  which  had 
been  thus  construed  in  those  cases  was  altered  so  as  to  limit  the 
power  of  a  married  woman  to  contract,  and  the  question  is  as  to 
the  extent  and  effect  of  that  limitation. 

By  the  law,  as  it  formerly  stood,  it  was  declared  that  "a  mar- 
ried woman  shall  have  the  right  *  *  *  to  contract  and  be  con- 
tracted with  in  the  same  manner  as  if  she  were  unmarried"; 
but  by  law  as  it  stood  at  the  date  of  the  alleged  contract  here  in 


HABENICHT  v.  RAWLS.  85 

question,  and  still  stands,  it  is  declared  that  "a  married  woman 
shall  have  the  right  *  *  *  to  contract  and  be  contracted 
with,  'asjto  her  separate  property,'  in  the  same  manner  as  if 
she  were  unmarried";  the  five  words  quoted  having  been  in- 
serted as  an  amendment  to  the  law  as  it  formerly  stood;  so  that 
the  question  raised  by  this  appeal  is  narrowed  down  to  the  in- 
quiry as  to  the  effect  of  those  five  words.  It  seems  to  us  that  the 
most  natural  and  the  proper  construction  of  the  terms  of  this 
act,  as  amended,  is  that  adopted  by  the  Circuit  judge ;  that  the 
•^contract  which  a  married  woman  is  therein  authorized  to  make 
is  "as  to  her  separate  property,  must  have  reference  to  her  sepa- 
rate property,  must  concern  her  separate  property." 

It  will  be  observed  that  the  question  is  as  to  what  contracts  a 
married  woman  may  make,  and  not  as  to  their  effect  after  they 
have  been  made.  If  a  given  contract  is  one  that  the  law  author- 
izes a  married  woman  to  make,  then  its  effect  is,  and  must  neces- 
sarily be,  the  same  as  that  of  a  contract  of  a  person  not  laboring 
under  any  disability.  It  is  very  clear  that  the  legislature  in- 
tended to  make  some  alteration  in  the  law  as  it  formerly  stood, 
and  we  think  it  equally  clear  that  the  intention  was  to  limit  the 
power  of  a  married  woman  as  to  the  kind  of  contracts  which  she 
was  permitted  to  make,  viz.:  to  those  in  relation  to  her  separate 
property.  As  we  have  seen,  prior  to  the  amendment  a  married 
woman  could  make  any  kind  of  contract  which  a  person  sui  juris 
could  make,  and  the  intention  undoubtedly  was  to  alter  this, 
and  hence  her  general  power  to  contract  was  qualified  by  the 
words  constituting  the  amendment,  so  that,  while  formerly  she 
had  the  unlimited  power  to  contract,  now  she  can  only  make  con- 
tracts "as  to  her  separate  property." 

We  are  unable  to  discover  anything  in  the  act  which  indicates 
that  the  intention  of  the  legislature  was  simply  to  confine  her 
liability  on  any  contract,  which  she  might  choose  to  make,  to  her 
separate  estate,  as  is  contended  for  by  appellant.  There  is  noth- 
ing in  the  act  which  shows  that  the  attention  of  the  legislature 
was  directed  to  the  kind  of  property  which  could  be  held  liable 
for  the  performance  of  a  married  woman's  contract;  and  on 
the  contrary,  the  language  used  shows  that  the  legislative  mind 
was  directed  to  the  kind  of  contract  which  she  was  to  be  permit- 
ted to  make,  and  not  to  the  kind  of  property  which  could  be  re- 
sorted to  in  case  of  a  breach  of  the  contract.  Very  recently, 
before  the  law  was  amended,  it  had  been  determined,  as  we  have 


86  PARTIES  TO  CONTRACT. 

seen,  although  there  was  no  little  contrariety  of  opinion  upon 
the  subject,  as  is  well  known,  that  a  married  woman  had  the 
same  capacity  to  make  any  kind  of  contract  as  any  other  person, 
and  the  irresistible  inference  is  that  it  was  this  that  the  legis- 
lature intended  to  alter,  so  as  to  confine  the  contracting  power 
of  a  married  woman  to  a  certain  class  of  contract,  to-wit,  those 
which  were  made  as  to  her  separate  estate. 

We  are  not  aware  that  any  controversy  had  arisen  or  any  ad- 
judication had  been  made  as  to  the  kind  of  property  which  could 
be  made  liable  for  the  breach  of  a  married  woman's  contract, 
and  therefore,  no  occasion  had  arisen  for  an  alteration  of  the 
law  in  that  respect.  Indeed  we  do  not  see  how  such  a  con- 
troversy could  have  arisen,  for  the  old  Code,  as  well  as  the  Code 
of  1882,  expressly  provided  that  damages  recovered  against  a 
married  woman  could  only  be  collected  out  of  her  separate 
estate.  Section  298  of  the  old  Code,  which  is  in  this  respect  the 
same  as  section  296  of  the  amended  Code,  provides  that  "in  an 
action  brought  by  or  against  a  married  woman,  judgment  may 
be  given  against  her  as  well  for  costs  as  for  damages,  or  both  for 
such  costs  and  for  such  damages,  in  the  same  manner  as  against 
other  persons,  to  be  levied  and  collected  of  her  separate  estate, 
and  not  otherwise."  And  in  section  310  of  the  old  Code,  the 
provision  was  that  "an  execution  may  issue  against  a  married 
woman,  and  it  shall  direct  the  levy  and  collection  of  the  amount 
of  the  judgment  against  her  from  her  separate  estate  and  not 
otherwise";  and  the  same  provision  is  found  in  section  307  of 
the  present  Code.  So  that  it  is  very  clear  that  the  construction 
contended  for  by  the  appellant,  to-wit,  that  the  amendment  now 
tinder  consideration  was  simply  designed  to  limit  the  liability 
of  a  married  woman  on  her  contracts  to  her  separate  estate,  can- 
not be  the  correct  one ;  for  such  a  construction  would  make  the 
amendment  in  question  wholly  unnecessary,  as  that  was  the  law 
before. 

We  are  therefore  of  opinion  that  the  object  of  the  amendment 
was  not  to  indicate  the  kind  of  property  which  could  be  made 
liable  for  the  breach  of  a  married  woman 's  contract,  but  to  limit 
her  right  to  contract,  so  that  she  could  only  make  such  contracts, 
as  at  the  time  they  were  made,  related  to  or  concerned  her  sepa- 
rate property.  Hence,  before  a  married  woman  can  be  made 
liable  for  the  breach  of  a  contract  alleged  to  have  been  made  by 
her,  it  must  be  made  to  appear,  either  from  the  inherent  nature 


HABENICHT  v.  RAWLS. 


87 


of  the  contract  or  otherwise,  that  the  contract  was  made  in  rela- 
tion to  or  concerned  her  separate  property.  Even  if  she  de- 
clares in  express  terms  her  intention  to  bind  her  separate  estate, 
that  alone  will  not  be  sufficient  to  render  the  contract  valid,  for 
the  question  is  as  to  her  power,  which  is  to  be  determined  by  the 
nature  of  the  contract  itself,  and  not  as  to  her  intention  to  bind 
her  separate  property.  If  therefore  a  wife  should  sign  a  note 
as  surety  for  her  husband,  or  indeed  for  any  other  person,  and 
should  declare  in  the  note  in  express  terms  her  intention  to  bind 
her  separate  estate,  that  would  not  make  the  contract  valid  as  to 
her  unless  it  was  made  to  appear  that  the  contract,  though  exe- 
cuted by  her  as  surety,  was  designed  to  benefit  her  separate 
property  or  in  some  other  way  related  to  or  concerned  such 
property. 

We  have  not  deemed  it  necessary  to  go  into  a  consideration  of 
the  very  numerous  cases  elsewhere  upon  questions  similar  to  the 
one  now  before  us;  for  while  the  statutes  of  the  various  States 
are  somewhat  like  our  own,  yet  they  differ  sometimes  very  mate- 
rially in  their  phraseology,  and  in  the  very  great  conflict  of  au- 
thority abroad  we  have  thought  it  more  likely  that  we  would 
reach  a  correct  solution  of  the  question  by  confining  our  atten- 
tion to  the  terms  of  our  statutes,  viewed  in  the  light  of  our  own 
past  legislation  and  adjudications. 

The  judgment  of  this  court  is  that  the  judgment  of  the  Circuit 
Court  be  affirmed. 

Judgment  affirmed. 

SIMPSON,  C.  J.,  concurred. 

McGowAN,  J.  I  concur  in  the  result.  As  the  purpose  of  the 
act  manifestly  was  to  confer  upon  a  married  woman  powers 
beyond  what  she  possessed  before,  I  cannot  suppose  that  by  the 
insertion  of  the  words,  "as  to  her  separate  estate,"  it  was  in- 
tended to  defeat  that  object  entirely  as  to  contracts.  The  same 
act,  in  conformity  to  the  Constitution,  confers  the  powers  "to 
bequeath,  devise  and  convey  her  separate  estate  in  the  same  man- 
ner and  to  the  same  extent  as  if  she  were  unmarried,"  and  in 
order  to  harmonize  the  different  provisions  I  incline  to  think  that 
the  intention  of  the  amendment  was  to  limit  the  power  of  a 
married  woman  to  such  contracts  as  express  an  intention  to 
bind  her  separate  property,  such  as  are  made  with  express  ref- 
erence to,  that  is  to  say,  "as  to  her  separate  property." 


88  PARTIES  TO  CONTRACT. 

APPEAL  OF  FREEMAN.    1897. 

68  Conn.  533;  37  Atl  Rep.  .420;  37  L.  R.  A.  452;  57  Am.  St. 

Rep.  112. 

Case  reserved  from  superior  court,  Hartford  county;  George 
W.  Wheeler,  Judge. 

Appeal  to  the  superior  court  by  Edward  A.  Freeman,  trustee 
of  the  estate,  of  H.  Brasilia  Mitchell,  insolvent,  from  an  adjudi- 
cation of  commissioners  allowing  a  claim  against  said  estate  by 
the  First  National  Bank  of  Chicago,  111.  Reserved,  on  a  finding 
of  facts,  for  the  advice  of  the  supreme  court.  Disallowance  of 
claim  advised. 

BALDWIN,  J.  Mrs.  Mitchell,  being  a  citizen  of  Connecticut, 
married  a  citizen  of  Connecticut  in  1857,  and  they  continued  to 
reside  in  this  state  until  his  death.  Her  marriage  gave  her, 
under  the  laws  of  the  state  then  in  f  orce?  substantially  the  status 
which  belonged  to  a  married  woman  at  common  law.  Her  per- 
sonal identity,  from  a  juridical  point  of  view,  was  merged  in  that 
of  her  husBand.  Thereafter,  during  coverture,  she  could  make 
no  contract  that  would  be  binding  upon  her,  even  by  his  express 
authority.  1  Swift's  Dig.  30.  If  she  assumed  to  make  such  a 
contract,  it  was  absolutely  void.  These  personal  disabilities  the 
common  law  imposed  partly  for  the  protection  of  the  husband, 
and  partly  for  tEat  of  the  wife.  To  preserve  what  property 
rights  remained  to  her,  as  far  as  might  be,  against  his  creditors, 
various  statutes  were  from  time  to  time  enacted,  until  this  long 
ago  became  recognized  as  the  established  policy  of  the  state. 
'Jackson  v.  Hubbard,  36  Conn.  10,  15.  These  statutes  were 
mainly  designed  to  protect  her  against  others.  The  common  law 
was  sufficient  to  protect  her  against  herself,  and  prior  to  1877  it 
precluded  her  from  making  any  contract  as  surety  for  her.  hus- 
band. Kilbourn  v.  Brown,  56  Conn.  149,  14  Atl.  784.  A  statute 
of  that  year  establishes  a  different  rule  for  women  married  after 
its  enactment,  but  does  not  enlarge  the  rights  of  those  previously 
married.  Gen.  St.  §2796. 

"Whenever  a  peculiar  status  is  assigned  by  law  to  the  members 
of  any  particular  class  of  persons,  affecting  their  general  posi- 
tion in  or  with  regard  to  the  rest  of  the  community,  no  one  be- 
longing to  such  class  can  vary  by  any  contract  the  rights  and 
liabilities  incident  to  this  status.  Anson,  Cont.  328.  If  he 


APPEAL  OF  FREEMAN.  89 

could,  his  private  agreements  would  outweigh  the  law  of  the 
land.  "Jus  publicum  privatorum  pactis  mutari  non  potest." 
•Coverture  constitutes  such  a  status,  and  one  of  its  incidents  in 
this  state,  at  the  time  of  Mrs.  Mitchell's  marriage,  was  a  total 
disability  to  contract.  So  far  as  contracts  of  suretyship  for 
their  husbands  are  concerned,  the  disability  of  women  married 
before  1877  remains  absolute,  unless  both  husband  and  wife  . 

have  executed  for  public  record  a  written  contract,  by  which 
both  accede  to  the  provisions  of  the  statute  of  that  year,  and 
accept  the  rights  which  it  offers  to  them.  Gen.  St.  §  2798.  No 
such  contract  was  ever  executed  by  Mrs.  Mitchell. 

The  claim  in  favor  of  the  First  National  Bank  of  Chicago, 
which  has  been  allowed  by  the  commissioners  on  her  estate,  was 
founded  on  a  debt  due  from  a  mercantile  firm  in  Illinois,  of 
which  her  husband  was  a  member,  for  which  she  had  assumed 
to  make  herself  responsible,  as  guarantor,  by  a  writing  dated  in 
Illinois,  but  signed  in  this  state.     The  creditor  had  agreed,  in 
Illinois,  with  the  firm,  to  forbear  suit  if  she  and  they  (as  a  firm 
and  individually)  would  become  parties  to  such  a  paper,  and, 
after  they  had  signed  it  there,  had  given  it  to  her  husbandj  in 
Illinois,  to  take  to  her,  in  this  state,  for  execution.    He  procured 
her  signature,  and  then  mailed  the  instrument  to  one  of  his 
partners  at  Chicago,  by  whom  it  was  there  delivered  to  the  bank. 
The  agreement  of  forbearance  had  been  conditioned  on  the  exe- 
cution of  the  guaranty  by  the  firm,  its  individual  members,  and 
Mrs.  Mitchell.    It  was  her  credit  only  that  was  to  give  it  value. 
Its  execution  by  the  others  gave  the  bank  nothing  which  it  did 
not  have  as  fully  before.    It  did  not  become  complete  until  it 
received  her  signature.     It  did  not  then  become  operative  as  a 
security  until  it  had  been  delivered  to  the  creditor.     Her  hus- 
band cannot  be  deemed  to  have  acted,  in  procuring  Mrs.  Mitch- 
ell's signature,  as  the  agent  of  the  bank.     No  finding  to  that 
effect  was  made  by  the  trial  court,  and  no  such  agency  is  implied 
from  the  circumstances  of  the  transaction.    He  had  a  direct  in- 
terest in  obtaining  the  desired  extension  of  credit.     He  was  a 
principal  in  the  obligation.    He  sent  the  paper,  as  soon  as  it  was 
completed,  not  to  the  bank,  but  to  another  of  the  principals. 
If  he  represented  any  one  but  himself,  it  was  his  co-partners. 
The  delivery  of  the  paper  by  his  wife  to  him,  therefore,  after 
her  signature  had  been  attached,  was  not  a  delivery  to  the  bank, 
but  simply  purported  to  give  him  authority,  as  her  agent,  to 


90  PARTIES  TO  CONTRACT. 

make  or  procure  such  a  delivery  at  some  subsequent  time.  If, 
therefore,  the  guaranty,  so  far  as  concerns  her  obligation  upon 
it,  was  ever  delivered,  it  was -delivered,  and  so  first  took  effect, 
in  Chicago.  But  its  delivery  there  could  not  affect  her,  unless 
it  was  made  by  her  or  by  her  authorized  agent.  Morse,  the 
partner  who  actually  handed  it  to  the  bank,  stood  in  no  better 
position  than  her  husband,  whether  regarded  as  the  servant  of 
the  latter,  or  as  a  partner  with  him.  In  either  case,  the  agency 
by  virtue  of  which  the  delivery  was  made  was  created,  if  at  all, 
in  Connecticut.  But  to  create  an  agency  is  to  enter  into  a  con- 
tractual relation.  Mrs.  Mitchell  had  no  capacity  to  make  any 
contract  whereby  her  legal  position  in  respect  to  all  or  any  of 
the  other  members  of  the  community  would  be  varied.  It  would 
have  varied  it  in  respect  to  her  husband  could  she  have  con- 
stituted him  her  agent  to  put  her,  by  the  delivery  of  an  instru- 
ment of  guaranty,  in  the  situation  of  a  surety  for  his  debt  to  a 
third  party.  He  therefore  derived  no  authority  from  her  to 
make  the  delivery  to  the  bank,  and,  as  to  her,  the  instrument 
never  was  delivered.  It  is  true  that  the  guaranty,  if  a  binding 
contract,  was  a  contract  made  in  Illinois.  It  might  also  be  as- 
sumed, so  far  as  concerns  the  law  of  this  case  (although  this 
is  a  point  as  to  which  we  express  no  opinion),  that  it  was  one 
to  be  performed  in  Illinois,  and  that,  as  to  the  principals  in  the 
transaction,  it  was  fully  an  Illinois  contract,  and  to  be  governed 
by  the  law  of  Illinois,  as  respects  any  question  as  to  its  validity. 
By  that  law,  a  married  woman  was  free  to  enter  into  such  an 
engagement,  and  to  constitute  an  agent  for  that  purpose.  But 
the  lex  loci  contractus  is  a  rule  of  decision  only  when  there  is  a 
contract,  so  made  as  to  be  subject  to  that  law.  It  is  a  petitio 
principii  to  say  that,  because  the  guaranty  was  delivered  in 
Chicago,  it  is  therefore  to  be  held  effectual  or  ineffectual,  as 
against  Mrs.  Mitchell,  by  the  law  of  that  place.  The  underlying 
question  is,  was  it,  as  to  her,  ever  delivered  at  all  ?  It  was  not  so 
delivered  unless  delivered  by  her  authority ;  and  by  the  laws  of 
Connecticut,  where  she  assumed  to  give  such  authority,  she  could 
not  give  it.  Cooper  v.  Cooper,  13  App.  Gas.  88,  99,  100 ;  Story, 
Confl.  Laws,  §§  64,  65,  66a,  136 ;  Dicey,  Confl.  Laws,  c.  18,  rule 
123. 

Had  Mrs.  Mitchell  been  within  the  state  of  Illinois  when  she 
sif^ned  the  guarantj^,  it  may  be  that  her  personal  presence  would 
have  so  far  made  her  a  resident  of  that  state  as  to  subject  her  to 


APPEAL  OF  FREEMAN.  91 

its  laws  in  respect  to  acts  done  within  its  jurisdiction.  But,  as 
whatever  was  done  in  Illinois  to  bind  her  to  the  bank  was  done 
under  an  agency  constituted  in  Connecticut,  it  is  the  law  of 
Connecticut  which  must  determine  as  to  the  authority  of  the 
agent,  and  so  as  to  the  validity  of  the  obligation  which  he,  as 
such,  undertook  to  impose  upon  her  by  the  delivery  in  Chicago 
of  the  paper  signed  by  her  in  Bristol.  The  order  drawn  by 
Mrs.  Mitchell  on  the  executor  of  her  father's  will,  directing  him 
to  pay  over  to  the  bank  whatever  might  otherwise  be  coming 
to  her  as  part  of  the  estate  in  his  hands,  though  dated  at  Chicago, 
was  brought  to  her  in  behalf  of  the  bank  in  Connecticut,  signed 
and  given  back  to  the  agent  of  the  bank  in  Connecticut,  ac- 
cepted by  the  executor  in  Connecticut,  and  then  mailed  in  Con- 
necticut by  its  agent  to  the  bank  at  Chicago.  The  whole  trans- 
action, therefore,  was  completed  here.  The  order  became  oper- 
ative, if  at  all,  to  transfer  her  interest  in  her  father's  estate, 
when  the  executor  had  notice  of  it,  and  agreed  to  comply  with  it 
by  handing  his  written  acceptance  to  the  agent  of  the  bank. 
That  Mr.  Mitchell  was  acting  in  that  capacity  seems  clear  from 
the  finding  that  the  bank,  after  the  firm  had  become  insolvent, 
and  made  an  assignment  for  the  benefit  of  its  creditors,  prepared 
the  paper,  and  sent  it  to  him,  to  procure  her  signature  to  it. 
No  assignment  which  she  could  make  would  benefit  the  firm.  If 
its  result  was  to  satisfy  the  claim  of  the  bank,  she  would  be 
subrogated  to  its  place,  and  their  creditors  would  receive  no 
greater  dividend.  The  order,  also,  was  for  the  payment  of  a 
share  in  the  estate  of  a  deceased  citizen  of  Connecticut,  in  course 
of  settlement  in  its  courts.  Under  these  circumstances,  its  valid- 
ity must  be  determined  by  the  laws  of  Connecticut,  and  being  de- 
pendent on  the  contractual  act  of  a  married  woman,  not  for  thq 
benefit  of  herself,  her  family,  or  her  estate,  it  was  void.  There 
have  been  cases  not  differing  essentially  in  principle  from  that 
at  bar,  in  which  courts,  to  whose  opinions  great  consideration  is 
due,  have  come  to  conclusions  varying  from  those  which  we  have 
reached.  The  leading  one  is  Milliken  v.  Pratt,  125  Mass.  374. 
There  a  guaranty  by  a  married  woman  of  such  debts  as  her 
husband  might  thereafter  contract  was  signed  in  Massachusetts, 
delivered  there  by  her  to  him,  and  by  him  there  mailed  to 
the  other  party,  in  Maine.  The  court  held  that  the  contract  be- 
came complete  when  the  guaranty  was  received,  and  acted  upon 
by  the  latter,  and  not  before,  and  enforced  it  as  one  made  and  to 


92  PARTIES  TO  CONTRACT. 

be  performed  in  Maine,  where  married  women  then  had  power  to 
enter  into  such  agreements.  No  reference  was  made  to  the  fact 
(which  may,  perhaps,  have  J^een  immaterial  under  the  laws  of 
Massachusetts)  that  the  delivery  was  made  by  the  husband,  act- 
ing as  the  agent  of  the  wife, — a  fact  which,  in  our  view,  under 
the  common  law  of  Connecticut,  is  of  controlling  importance. 
Engagements  which  coverture  prevents  a  woman  from  making 
herself  she  cannot  make  through  the  interposition  of  an  agent, 
whom  she  assumes  to  constitute  as  such  in  the  state  of  her  domi- 
cile. If  this  were  not  so,  the  law  could  always  be  evaded  by  her 
appointment  of  an  attorney  to  act  for  her  in  the  execution  of 
contracts.  No  principle  of  comity  can  require  a  state  to  lend 
the  aid  of  its  courts  to  enforce  a  security  which  rests  on  a  trans- 
gression of  its  own  law  by  one  of  its  own  citizens.,  committed 
within  its  own  territory.  Such  was,  in  effect,  the  act  by  which 
Mrs.  Mitchell  undertook  to  do  what  she  had  no  legal  capacity 
to  do,  by  making  her  husband  her  agent  to  deliver  the  guaranty 
to  the  bank.  He  had  no  more  power  to  make  it  operative  by  de- 
livery in  Chicago  to  one  of  his  creditors  in  Illinois  than  he 
would  have  had  to  make  it  operative  by  delivery  here,  had  it 
been  drawn  in  favor  of  one  of  his  creditors  in  Connecticut.  It 
is  not  the  place  of  delivery  that  controls,  but  the  power  of  de- 
livery. The  superior  court  is  advised  to  disallow  all  and  every 
part  of  the  claim  of  the  First  National  Bank.  The  other  judges 
concurred. 


HOLLOWAY'S  ASSIGNEE  v.  RUDY.    1901. 
22  Ky.  Law  Eep.  1406;  60  8.  W.  Rep.  650;  53  L.  E.  A.  353. 

Appeal  from  circuit  court,  Henderson  county. 

Action  by  the  assignee  of  H.  S.  Holloway  against  Marcy  C. 
Rudy  upon  a  contract.  Judgment  for  defendant,  and  plaintiff 
appeals.  Affirmed. 

0  'REAR,  J.  While  appellee  was  a  married  woman,  and  before 
the  enactment  of  our  present  married  women's  act,  appellant 
H.  S.  Holloway,  who  was  her  kinsman,  executed  to  the  Planters ' 
Bank  a  note  for  $2,500,  and  one  to  the  Farmers'  Bank  for  $900, 
as  surety  of  appellee's  husband.  Appellant  claims  that  he  was 
induced  to  incur  these  liabilities  by  appellee's  personal  assur- 


HOLLOWAY'S  ASSIGNEE  v.  RUDY.  93 

ances  or  promises  of  indemnity  against  loss,  and  that  lie  would 
not  have  done  so  but  for  his  reliance  upon  her  agreement  to  keep 
him  from  loss  on  that  account.  The  husband  died  in  1893,  after 
appellant 's  liability  had  been  assumed,  and  left  an  estate'  totally 
insolvent.  After  the  husband's  death  appellee  wrote  appellant 
asking  him  to  pay  off  the  notes  in  question,  and  again  promis- 
ing to  indemnify  him  against  loss.  Appellant  did  pay  off  these 
notes,  because,  he  says,  of  "this  solicitation  and  promise.  Ap-  ~ 
pellee  declining  to  comply  with  her  agreement  to  repay  the 
surety  these  sums  paid  by  him,  he  sued  her  on  the  last-named  or_ 
written  promise  to  pay.  Other  allegations  were  contained  in  the 
petition,  but  were  denied,  and,  there  being  a  total  failure  of 
proof  as  to  those  that  were  denied,  we  are  to  determine  whether 
the  trial  court's  peremptory  instruction  to  the  jury  to  find  for 
the  defendant  was  proper.  The  determination  of  that  question 
involves  the  one  whether  the  promise  of  a  married  woman,  made 
while  under  the  disability  of  coverture,  inducing  another  to  be- 
come bound  as  the  surety  of  her  husband,  is  a  sufficient  con- 
sideration to  support  a  promise  of  indemnity  made  to  the  surety; 
after  the  removal  of  such  disability. 

It  is  argued  for  appellant  that  her  original  promise  was  based 
upon  facts  imposing  upon  her  a  moral  obligation,  and  that  al- 
though not  legally  binding  because  the  law  prohibited  from 
legally  binding  herself,  upon  the  law's  restrictions  being  re- 
moved the  original  moral  obligation  was  enough  to  support  a 
new  promise  to  pay.  While  formerly  extensively  held  that 
moral  obligation  was  a  sufficient  consideration  to  uphold  a  con- 
tract between  competent  parties,  it  has  lately  come  to  be  denied, 
until  it  may  now  be  seriously  doubted  whether  the  ancient  rule 
longer  obtains.  Bish.  Cont.  44,  and  cases  cited;  Pars.  Cont.  432, 
435,  and  notes.  It  has  been  held  in  this  state  that  a  moral  obli- 
gation, where  it  has  also  been  a  legal  one,  might  be  the  consider- 
ation of  a  new  contract  (Montgomery  v.  Lampton,  3  Mete.  520; 
Muir  v.  Gross,  10  B.  Mon.  282)  ;  but  we  are  not  aware  that  the 
rule  has  been  extended  further,  and,  in  the  light  of  the  trend  of 
the  later  cases,  we  are  disinclined  to  so  extend  it. 

We  have  repeatedly  held  that  the  contract  of  a  married 
woman,  not  with  reference  to  her  separate  estate,  and  where  not 
especially  allowed  by  statute,  was  void,  and  that  her  subsequent 
promise  to  pay  such  an  obligation,  made  after  disco verture,  was 
likewise  void, — the  first,  because  she  was  not  competent  to  make 


94  PARTIES   TO  CONTRACT. 

the  contract;  the  second,  because  there  was  no  consideration  to 
support  it.  Eobinson  v.  Robinson 's  Trustee,  11  Bush.  179 ;  Jen- 
nings v.  Grider,  2  Bush.  322;  Russell  v.  Rice  (Ky.),  44  S.  W. 
110;  Chaney  v.  Flynn,  2  Ky.  Law.  Rep.  417;  and  others.  We 
think  the  fair  deduction  from  the  foregoing  line  of  decisions  is 
that,  without  reference  to  what  may  have  been  the  merit  of  the 
consideration  of  the  original  promise,  the  new  contract,  to  be 
binding,  must  be  based  upon  a  new  consideration,  legal  and 
sufficient  of  itself,  and  independent  of  the  original  one.  That 
the  surety  paid  off  these  notes  upon  the  faith  of  the  appellee's 
letter  was  not  such  new  consideration;  for  he  assumed  no  new 
condition,  and  did  nothing  he  was  not  already  legally  bound  to 
do.  It  follows  that  the  giving  of  the  peremptory  instruction 
was  proper,  and  the  judgment  is  therefore  affirmed. 


6.  A  corporation  cannot  become  a  surety  unless  authorized  by 
its  articles  of  incorporation  to  do  so,  or  the  contract  relates 
to  its  corporate  business. 

KNICKERBOCKER  v.  WILCOX.     1890. 
83  Mich.  200;  47  N.  W.  Rep.  123;  21  Am.  St.  Eep.  595.          , 

CAHILL,  J.  This  was  an  action  of  assumpsit  brought  to  re- 
cover upon  a  written  undertaking  to  indemnify  the  plaintiff 
against  all  harm  by  reason  of  his  signing  a  replevin  bond  with 
Bellman  and  Handy  in  a  suit  brought  by  them  against  Naomi 
Warner,  at  Elkhart,  Indiana.  The  following  is  the  undertaking 
sued  on: 

"John  Cox,       Henry  Hall,       L.  T.  Wilcox,       E.  E.  Wilcox, 
President.      Vice-President.           Cashier.        Asst.  Cashier. 
"Established  1872.     Reorganized  1884. 
"Three  Rivers  National  Bank. 

"Three  Rivers,  Mich.,  Oct.  11,  1886. 
"W.  H.  Knickerbocker,  Cashier,  Elkhart,  Indiana, 

"Dear  Sir, — A  replevin  suit  has  been  commenced  in  your 
county  by  Bellman  and  Handy,  of  this  place,  against  Naomi 
Warner,  of  your  place.  They  (B.  &  H.),  being  non-residents, 
are  required  to  give  bonds.  They  are  good  customers  of  ours, 
and  if  you  will  sign  said  bond,  we  will  stand  between  you  and 
all  harm.  L.  T.  WILCOX,  Cashier." 


KNICKERBOCKER  v.  WILCOX.  95 

Defendant  pleaded  the  general  issue,  and  gave  notice  that  it 
would  be  shown  on  the  trial  that  the  defendant  did  not,  in  any 
way,  individually  enter  into  the  contract  alleged  in  plaintiff's 
'declaration;  and  also  that  if  he  ever  did,  either  individually, 
personally,  or  as  the  agent  or  in  behalf  of  another,  enter  into 
such  contract,  the  conditions  of  the  same  had  been  fully  satisfied 
and  performed. 

It  is  claimed  by  the  plaintiff  that  on  the  strength  of  defend- 
ant's letter  he  signed  the  replevin  bond  as  requested,  as  surety 
for  Bellman  and  Handy,  and  that  the  same  was  delivered  to  the 
sheriff,  who  thereupon  delivered  the  property  taken  under  the 
writ  to  Bellman  and  Handy;  that  the  replevin  suit  came  on  for 
trial  in  the  Elkhart  circuit  court,  and  Bellman  and  Handy 
were  defeated.  The  defendant  elected  to  take  a  judgment  for 
a  return  of  the  property.  To  satisfy  such  judgment,  the  same 
was  returned  to  her.  Nevertheless,  she  insisted  that  certain 
goods  were  not  returned,  and  that  other  goods  were  returned  in 
a  damaged  condition,  and  she  brought  suit  upon  the  replevin 
bond  in  the  Elkhart  circuit  court  against  Bellman  and  Handy 
as  principals,  and  Knickerbocker  as  surety,  to  recover  such 
damages.  Bellman  and  Handy  and  Knickerbocker  each  em- 
ployed Mr.  Van  Fleet  as  attorney  to  defend  that  action.  There 
is  no  legal  evidence  in  the  record  that  Mr.  Wilcox  had  notice  of 
this  suit,  or  opportunity  to  defend  it.  Upon  the  trial  of  this  suit 
on  the  replevin  bond,  Mrs.  Warner,  the  plaintiff,  recovered  a 
verdict  for  $107.50,  and  costs.  The  court,  on  motion  of  defend- 
ants, granted  a  new  trial,  and  when  the  same  was  about  to 
come  on  for  a  second  trial,  Mr.  Van  Fleetz  being  of  the  opinion 
that  it  would  be  cheaper  and  better  for  his  clients  to  com- 
promise the  suit  than  to  try  it,  took  the  responsibility  to  effect 
a  settlement,  and  for  that  purpose  consented  that  Mrs.  Warner 
might  take  a  judgment  against  his  clients  for  fifty  dollars,  and 
costs  of  the  first  trial.  At  this  time,  neither  Bellman,  Handy, 
nor  Knickerbocker  was  present  in  court,  or  had  any  knowledge 
of  such  proposed  settlement.  But  Bellman  and  Handy  were  at 
once  notified  of  the  same,  and  upon  their  objecting  to  such  judg- 
ment, were  informed  by  their  attorney,  Mr.  Van  Fleet,  that  Mrs. 
Warner  was  also  dissatisfied,  and  that  her  attorney  would  con- 
sent to  set  aside  the  judgment  and  have  a  new  trial,  and  that 
they  could  employ  other  counsel  if  they  wished.  This  offer  was 
not  accepted,  and  the  judgment  of  $50,  and  costs,  was  allowed 


96  PARTIES   TO   CONTRACT. 

to  stand,  and  the  plaintiff,  Knickerbocker,  paid  the  same,  on 
January  18,  1888,  amounting  in  all  to  $183.75. 

Afterwards,  Mr.  Van  Fleet  presented  a  bill  to  Bellman  and 
Handy  for  his  services  in  the  defense  of  the  suit  on  the  replevin 
bond.  They  refused  to  pay  it,  and  he  commenced  suit  in  the 
Elkhart  circuit  court  against  Mr.  Knickerbocker  for  the  same 
bill.  Thereupon  Mr.  Knickerbocker  notified  Mr.  Wilcox  person- 
ally of  the  fact  that  he  had  been  sued,  and  that  it  was  neces- 
sary for  him  to  appear  and  defend.  To  this  notice  Mr.  Wilcox 
paid  no  attention.  In  that  suit  a  judgment  was  recovered  by 
Mr.  Van.  Fleet  against  Mr.  Knickerbocker  for  $150  damages  and 
$10.50  costs,  which  Mr.  Knickerbocker  afterwards  paid.  After 
the  payment  of  these  two  judgments,  Mr.  Knickerbocker  called 
upon  Mr.  Wilcox  to  make  good  his  agreement  and  save  him 
harmless  by  reason  thereof.  This  Mr.  Wilcox  refused  to  do,  and 
this  action  was  brought. 

Upon  the  trial,  the  plaintiff  offered  in  evidence  the  letter 
written  by  Mr.  Wilcox  to  him,  October  11,  1886,  upon  the 
strength  of  which  he  claimed  to  have  signed  the  replevin  bond. 
This  was  objected  to  by  defendant,  upon  the  ground  that  it  was 
not  the  undertaking  of  the  defendant,  but  it  appeared  upon  its 
face  to  be  the  undertaking  of  the  Three  Rivers  National  Bank, 
of  which  Mr.  Wilcox  was  cashier.  The  objection  was  overruled, 
and  the  letter  admitted. 

Plaintiff  also  offered  in  evidence  transcripts  of  the  two  judg- 
ments rendered  against  him  in  the  Elkhart  circuit  court,  and 
which  he  claimed  he  had  been  compelled  to  pay.  These  were  ob- 
jected to  by  the  defendant  upon  the  ground  that  it  did  not  ap- 
pear from  any  evidence  in  the  case  that  the  plaintiff  had  signed 
any  replevin  bond,  as  requested  by  defendant,  and  that  it  was 
incumbent  upon  the  plaintiff  to  show  the  original  of  such  bond, 
and  that  the  plaintiff  had  in  fact  executed  the  same.  The  orig- 
inal of  the  replevin  bond  was  not  produced  nor  offered  in  evi- 
dence upon  the  trial.  But  what  purported  to  be  a  copy  of  such 
bond,  found  in  the  transcript  of  the  suit  brought  on  the  replevin 
bond,  was  offered,  together  with  evidence  by  Mr.  Knickerbocker 
and  Mr.  Van  Fleet  that  the  same  was  a  true  copy  of  the  original 
bond.  It  was  not  shown  that  the  original  bond  was  lost,  nor 
was  the  failure  to  produce  it  accounted  for,  otherwise  than  by 
evidence  that  it  was  delivered  originally  to  the  sheriff  in  In- 
diana, and  sued  on  by  Mrs.  Warner  in  that  state. 


KNICKERBOCKER  v.  WILCOX.  97 

The  defendant  was  allowed,  on  cross-examination  of  plaintiff's 
witnesses,  to  interrogate  them  in  relation  to  facts  having  a  tend- 
ency to  impeash  the  judgments,  upon  the  ground  that  they  were 
collusive  and  fraudulent  as  to  Wilcox.  This  was  objected  to 
by  plaintiff's  counsel,  and  error  is  assigned  upon  this  ruling. 

When  the  plaintiff  had  rested  his  case,  the  court,  on  motion  of 
the  defendant's  counsel,  instructed  the  jury  to  render  a  verdict 
for  defendant.  Error  is  assigned  upon  this  ruling. 

It  does  not  appear  upon  what  ground  this  instruction  was 
given.  It  is  defended  by  counsel  for  defendant  upon  the  ground, 
first,  that  the  alleged  guaranty  was  not  and  did  not  purport  to 
be  the  individual  guaranty  of  the  defendant,  Wilcox;  that  he 
was  acting  for  the  Three  Rivers  National  Bank,  in  his  official 
capacity  as  cashier.  Undoubtedly,  if  the  paper  in  question  had 
been  a  note  or  bill  of  exchange,  or  any  other  instrument  which 
it  was  clearly  within  the  power  of  the  cashier  to  make  for  the 
bank,  no  question  could  be  raised  as  to  its  being  the  contract  of 
the  bank.  But  in  this  case  the  paper  relied  on  shows  on  its  face 
that  it  was  given  in  the  course  of  a  transaction  which  the  bank 
could  not  lawfully  enter  into.  National  banks  possess  only  such 
powers  as  are  expressly  conferred  upon  them  by  the  act  of  Con- 
gress under  which  they  are  organized,  and  no  power  is  given 
them  to  enter  into  contracts  of  suretyship  in  which  they  have 
no  interest:  U.  S.  R.  S.,  sec.  5136;  Bullard  v.  National  Eagle 
Bank,  18  Wall.  589 ;  Matthews  v.  Skinker,  62  Mo.  329 ;  21  Am. 
Rep.  425 ;  Wiley  v.  First  Nat.  Bank,  47  Vt.  546,  19  Am.  Rep. 
122;  First  Nat.  Bank  v.  Hoch,  89  Pa.  St.  324,  33  Am.  Rep.  769. 
This  rule  of  law  must  be  presumed  equally  well  known  to  both 
parties. 

The  paper  not  being  the  contract  of  the  bank,  then  can  it  be 
said  to  be  the  contract  of  Wilcox  himself?  Does  it,  upon  its 
face,  appear  so  clearly  to  have  been  intended  as  the  undertaking 
of  the  bank,  executed  through  Wilcox  as  its  cashier  and  agent, 
as  to  bring  it  within  the  rule  that  his  want  of  authority  to  bind 
the  bank,  for  which  he  assumed  to  act,  does  not  render  him  in- 
dividually liable,  when  the  facts  and  circumstances  indicate  that 
no  such  liability  was  intended  by  either  of  the  parties?  In  de- 
ciding this  question,  weight  must  be  given  to  the  argument  that 
the  writing  of  this  letter  will  not  lightly  be  assumed  to  hnvo 
been  a  mere  idle  ceremony.  We  must  assume  that  the  parties 
to  it  intended  it  to  have  some  effect.  The  cases  in  Missouri 

7 


98  PARTIES   TO  CONTRACT. 

(Michael  v.  Jones,  84  Mo.  578;  Humphrey  v.  Jones,  71  Mo.  62; 
and  Western  Cement  Co.  v.  Jones,  8  Mo.  App.  373),  relied  on 
by  counsel  for  defendant,  were  all  cases  in  which  the  guardian 
of  an  insane  person  had  traded  with  his  ward's  estate,  contrary 
to  the  provisions  of  law,  and  had  suffered  losses.  The  persons 
dealing  with  him  had  done  so  with  full  knowledge  of  the  fact 
that  he  was  acting,  not  for  himself,  but  for  his  ward.  It  was 
held  that  where  the  facts  are  known  to  both  parties,  and  the 
mistake  is  one  of  law  as  to  the  liability  of  the  principal,  the  fact 
that  the  principal  cannot  be  held  is  no  ground  for  charging  the 
agent. 

We  cannot  apply  that  rule  to  this  case,  for  the  reason  that  it 
does  not  clearly  and  unequivocally  appear  that  Wilcox  was 
claiming  to  act  for  the  bank,  and  that  he  was  not  intending  to 
bind  himself.  To  say  that  he  intended  to  bind  the  bank  is  to 
suppose  him  ignorant  of  the  plain  rules  of  law  governing  the 
institution  of  which  he  was  a  principal  officer.  There  «are  many 
cases  in  which  it  has  been  held  that  the  addition  to  one's  signa- 
ture of  his  title  does  not  make  the  paper  the  contract  of  the  cor- 
poration in  which  he  is  an  officer.  Such  designation  has  been 
treated  as  a  mere  description  of  the  person ;  Tilden  v.  Barnard, 
43  Mich.  376,  38  Am.  Eep.  197 ;  Hayes  v.  Brubaker,  65  Ind.  27. 

The  second  argument  advanced  in  support  of  the  judgment  is, 
that  there  was  no  proof  in  the  case  that  the  plaintiff  signed  the 
replevin  bond  as  he  alleged  in  his  declaration.  I  think  this 
point  is  without  force.  The  judgment  record  in  the  suit  brought 
upon  the  replevin  bond  shows  a  copy  of  the  bond  set  out  at 
length  in  the  complaint,  as  the  only  cause  of  action  relied  on. 
It  will  be  presumed  in  support  of  such  judgment  that  it  was 
rendered  after  due  proof  of  the  execution  of  the  bond  declared 
on.  For  the  purpose  of  identifying  the  judgment  as  rendered 
upon  the  bond  signed  by  plaintiff  at  defendant's  request,  parol 
testimony  was  admissible.  I  think,  also,  a  foundation  was  laid 
for  the  admission  of  secondary  evidence  of  the  execution  of  the 
bond.  It  was  never  in  the  possession  of  the  plaintiff.  It  was 
delivered  in  the  first  instance  to  the  sheriff  at  Elkhart,  Indiana, 
and  by  him  assigned  to  Mrs.  Warner,  who  brought  suit  on  it  in 
that  state.  Presumably,  therefore,  it  was  out  of  the  jurisdiction 
of  the  courts  of  this  state,  and  secondary  evidence  of  its  con- 
tents was  admissible.  Woods  v.  Burke,  67  Mich.  674. 

As  the  case  must  go  back  for  a  new  trial,  I  think  it  proper  to 


LUCAS  v.  WHITE  LINE  TRANSFER  CO.  99 

say  that  the  Indiana  judgments,  while  prima  facie  evidence  of 
the  amount  which  the  defendant  is  liable  to  pay  to  indemnify 
the  plaintiff,  are  not  conclusive  upon  him.  He  had  no  notice  of 
the  pendency  of  the  first  suit,  and  the  judgment  in  that  suit  was 
finally  entered  by  consent.  It  is  open  to  him  to  impeach  the  good 
faith  of  this  transaction  if  he  can  do  so.  If  Mr.  Knickerbocker 
employed  counsel  in  good  faith  to  defend  that  action,  it  was 
proper  for  him  to  do  so,  and  any  expense  incurred  by  him  in 
such  defense  was  incurred  for  the  benefit  of  Wilcox,  as  well  as 
himself,  and  Wilcox  would  be  liable  to  indemnify  him  against 
such  payment.  Of  the  suit  brought  by  Mr.  Van  Fleet  against 
Mr.  Knickerbocker  for  counsel  fees,  Mr.  Wilcox  had  due  notice, 
and  was  asked  to  defend.  Having  declined  to  do  so,  we  think  he 
is  bound  by  the  judgment,  unless  it  appear  that  it  was  rendered 
under  such  circumstances  of  collusion  between  the  parties  as 
would  amount  to  a  fraud  upon  Wilcox. 

The  circuit  judge  was  wrong  in  directing  a  verdict  for  the 
defendant,  and  the  judgment  must  be  reversed,  and  a  new  trial 
granted. 


LUCAS  v.  WHITE  LINE  TRANSFER  CO.    1886. 
70  Iowa  541;  30  N.  W.  Rep.  771;  59  Am.  Rep.  449. 

Action  by  co-surety  for  contribution.  The  opinion  states  the 
case.  The  plaintiff  had  judgment  below. 

ROTHROCK,  J.  I.  The  petition  shows  that  the  Valley  National 
Bank  and  White  Line  Transfer  Company  are  corporations  or- 
ganized under  the  laws  of  Iowa;  that  for  the  purpose  of  secur- 
ing to  the  Philip  Best  Brewing  Company  payment  for  such  beer 
as  Leach  &  McCullum  should  purchase  of  said  brewing  com- 
pany, said  bank  by  its  cashier  and  said  transfer  company  by  its 
secretary,  J.  0.  Perrin,  became  sureties  for  said  Leach  &  Mc- 
Cullum in  a  bond  for  $1,500  made  to  said  brewing  company  as 
obligees;  that  subsequently  the  said  Leach  &  McCullum  failed 
in  business,  and  refused  to  pay  their  indebtedness  to  the  brew- 
ing company,  and  on  May  27,  1884,  executed  their  note  to  the 
said  bank  and  transfer  company,  payable  on  demand,  and  in 
consideration  of  the  payees  therein  assuming  to  pay  $1,500  to 


100  PARTIES   TO   CONTRACT. 

said  brewing  company;  that  on  May  28,  1884,  the  following  let- 
ter was  directed  to  and  accepted  by  the  brewing  company: 

"  Philip  Best  Brewing  Company,  Milwaukee,  Wis. : 

"Dear  Sir — By  an  arrangement  with  Leach  &  McCullum, 
and  in  view  of  the  fact  that  we  were  sureties  to  you  for  them, 
we  have  assumed  $1,500  (the  measure  of  our  obligations  as 
sureties)  of  their  indebtedness  to  you. 

"Very  respectfully,  etc., 

"W.   D.   LUCAS,   Cashier, 

"White  Line  Transfer  Co. 
"P.  J.  MILLS,  President." 

That  on  the  30th  day  of  September,  1884,  the  brewing  com- 
pany made  demand  for  the  sum  of  $1,500,  and  interest,  and 
plaintiff,  after  requesting  the  transfer  company  to  pay  its  half 
thereof,  and  its  refusing  to  do  so,  paid  to  said  brewing  com- 
pany, "on  said  suretyship,"  the  sum  of  $1,572.51;  that  on  the 
28th  day  of  May,  1884,  suit  in  attachment  was  brought  in  the 
name  of  plaintiff  and  defendant,  and  against  Leach  &  McCul- 
lum, on  the  said  note,  dated  May  27,  1884,  and  judgment  recov- 
ered thereon ;  that  the  amount  paid  to  the  brewing  company  ex- 
ceeds the  amount  realized  from  the  attachment  proceedings  by 
the  sum  of  $1,267.79;  that  the  interest  thereon  is  $35.56,  mak- 
ing a  total  of  $1,303.35;  that  general  execution  was  issued  in 
the  judgment  against  Leach  &  McCullum,  and  returned  nulla 
bona.  Wherefore  the  plaintiff  claims  that  the  transfer  company, 
as  co-surety  in  the  said  bond,  should  contribute  one-half  the  last- 
named  sum,  being  $651.67,  and  asks  judgment  therefor. 

The  plaintiff  attached  to  the  petition  a  copy  of  the  bond  to 
the  brewing  company,  signed  by  the  firm  and  individual  names 
of  Leach  &  McCullum,  and  also  signed:  "W.  D.  Lucas,  Cashier, 
White  Line  Transfer  Co.  J.  0.  Perrin,  Secretary."  There 
are  also  attached  copies  of  attachment,  and  indemnifying  bonds 
given  in  the  attachment  proceedings,  signed  by  Lucas,  cashier, 
and  the  transfer  company,  as  above,  and  also  copies  of  pleadings 
and  stipulations  in  said  attachment  proceedings,  signed  by  at- 
torneys purporting  to  act  for  both  the  bank  and  the  transfer 
company,  who  were  joined  as  plaintiffs  in  said  attachment  pro- 
ceedings. 

The  White  Line  Transfer  Company,  defendant,  filed  an  an- 
swer, stating,  in  substance,  that  the  sole  object  of  its  organiz- 
ation was  to  engage  in  the  "general  freight  and  transfer  busi- 


LUCAS  v.  WHITE  LINE  TRANSFER  CO.  101 

ness";  that  it  had  no  power  or  authority  to  become  surety  for 
the  debt  of  another;  that  the  secretary  of  said  company,  in 
signing  the  name  of  the  defendant  to  the  bond  given  to  the  brew- 
ing company,  and  the  president  of  the  company,  in  signing  the 
name  of  defendant  to  the  letter  of  May  28,  1884,  did  so  without 
authority  from  the  directors  or  stockholders  of  the  defendant, 
and  without  the  knowledge,  on  the  part  of  many  of  them,  that 
such  signatures  had  been  or  were  to  be  made ;  that  the  note  exe- 
cuted by  Leach  and  McCullum,  dated  May  27,  1884,  payable  to 
plaintiff  and  defendant,  was  so  taken  by  plaintiff  without  any 
knowledge  on  the  part  of  the  defendant's  officers  or  stockholders 
until  some  time  after  said  note  was  in  the  possession  of  the  plain- 
tiff, and  that  the  attachment  suit  and  proceedings  based  on  said 
note  were  commenced  and  carried  on  without  the  knowledge 
of  a  large  number  of  defendant's  stockholders,  who  had  a  large 
share  of  the  stock.  The  answer  further  states  that  the  company 
never  received,  directly  or  indirectly,  anything  for  signing  said 
bond  or  letter,  or  on  account  of  said  attachment  proceedings; 
that  neither  itself  nor  its  officers  had  any  authority  to  sign  the 
contracts,  or  do  the  acts  alleged  in  plaintiff 's  petition ;  and  that 
said  contracts  were  and  are  ultra  vires.  To  the  answer  was  at- 
tached a  copy  of  defendant's  articles  of  incorporation,  in  which 
appears  the  following  article:  ''(3)  Object.  Said  corporation 
shall  have  power  to  engage  in  the  general  freight  and  transfer 
business  and  such  other  business  as  may  not  be  inconsistent 
therewith." 

To  this  answer  the  plaintiff  filed  a  demurrer,  on  the  ground 
that  by  reason  of  the  matters  set  out  in  the  petition,  and  exhibits 
thereto,  and  by  reason  of  the  taking  of  said  note  in  favor  of 
plaintiff  and  defendant,  and  the  proceedings  therein,  as  set 
forth,  defendant  was  estopped  from  setting  up  the  plea  of  ultra 
vires,  and  that  the  fact  that  some  of  the  stockholders  did  not 
know  of  the  proceedings  would  not  relieve  the  defendant  from 
liability. 

P.  J.  Mills  and  J.  0.  Perrin  being  made  parties  defendant, 
each  demurred  to  the  petition  on  the  ground  that  on  the  face  of 
the  petition  itself  it  appeared  that  they  had  not  signed  any  of 
the  obligations  as  individuals,  and  that  the  petition  itself  made 
no  personal  claim  against  them. 

The  court  below  sustained  the  demurrer  to  the  answer,  and 
rendered  judgment  in  favor  of  plaintiff,  on  default  for  want  of 


102  f  PARTIES   TO   CONTRACT. 

answer,  for  the  sum  of  $628.02,  and  interest.  From  this  ruling 
and  judgment  the  defendant  appeals.  The  court  also  sustained 
the  demurrers  of  J.  0.  Perrin  and  P.  J.  Mills,  and  from  this  rul- 
ing the  plaintiff  appeals. 

As  to  the  last  ruling,  we  think  the  Circuit  Court  should  be 
sustained,  as  the  petition  does  not  state,  nor  attempt  to  state,  a 
cause  of  action  against  Perrin  and  Mills  as  individuals. 

II.  The  principal  question  involved  in  the  appeal  is  the  rul- 
ing on  the  demurrer  interposed  by  plaintiff  against  defendant's 
answer.  It  is  true,  the  demurrer  seems  to  be  based  on  the  idea 
solely,  that  by  the  conduct  of  the  defendant  subsequent  to  sign- 
ing the  original  bond,  it  has  estopped  itself  from  setting  up 
the  plea  of  want  of  power  or  authority  to  sign  the  bond.  The 
two  following  propositions  are  proper  to  be  considered :  1.  Had 
the  officers  of  the  defendant  power  to  bind  the  corporation  by 
placing  its  name  on  the  bond  in  question?  2.  If  they  had  no 
such  power,  has  the  corporation,  or  its  officers,  so  acted  in  re- 
lation thereto  subsequently  as  to  prevent  or  estop  the  corpo- 
ration from  now  setting  up  the  plea  of  want  of  power? 

The  corporation  defendant  is  acting  under  the  general  in- 
corporation laws  of  the  State,  and  from  the  provisions  of  its 
articles  and  the  statute  it  derives  its  power.  A  corporation  ex- 
ists and  exercises  its  franchise  only  by  virtue  of  a  grant  from 
the  legislative  power.  The  granting  and  acceptance  of  a  char- 
ter in  the  case  of  private  corporations  for  pecuniary  profit  are 
based  on  the  theory  that  the  prosecution  of  the  business  pro- 
posed will  be  a  benefit  to  the  public,  and  that  the  investment 
of  capital  therein  will  result  in  pecuniary  profit  to  the  stock- 
holders, and  that  it  is  an  undertaking,  on  the  part  of  the  cor- 
poration and  all  of  its  stockholders,  that  in  consideration  of 
the  grant  of  power,  the  capital  shall  be  used  for  the  prosecution 
of  the  purpose  named  in  the  charter,  and  no  other.  There  is 
also  an  undertaking  on  the  part  of  the  corporation  with  each 
stockholder  that  the  capital  he  invests  shall  be  put  to  no  other 
use,  and  subject  to  no  other  hazard,  than  that  contemplated  by 
the  powers  expressed  in  the  charter,  and  that  those  things  which 
are  within  the  scope  or  object  of  the  corporation  shall  be  don? 
in  the  manner  pointed  out  in  the  charter  and  the  laws  govern-; 
ing  its  action.  But  corporations  and  their  officers  do  not  always 
keep  within  their  powers,  and  the  application  of  the  doctrine 
of  ultra  vires  is  often  attended  with  very  perplexing  questions. 


LUCAS  v.  WHITE  LINE  TRANSFER  CO.  103 

By  the  application  of  a  few  plain  rules,  however,  we  may  readily 
reach  the  proper  answer  to  the  questions  involved  in  the  case. 

1.  Every  person  dealing  with  a  corporation  is  charged  with 
knowledge  of  its  powers  as  set  out  in  its  recorded  articles  of  in- 
corporation. 

2.  "Where  a  corporation  exercises  powers  not  given  by  its 
charter,  it  violates  the  law  of  its  organization,  and  may  be  pro- 
ceeded against  by  the  State,  through  its  attorney  general,  as 
provided  by  the  statute,  and  the  unanimous  consent  of  all  the 
stockholders  cannot  make  illegal  acts  valid.     The  State  has  the 
right  to  interfere  in  such  case. 

3.  Where  a  third  party  makes  with  the  officers  of  a  corpora- 
tion an  illegal  contract  beyond  the  powers  of  the  corporation,  as 
shown  by  its  charter,  such  third  party  cannot  recover,  because 
he  acts  with  knowledge  that  the  officers  have  exceeded  their 
power,  and  between  him  and  the  corporation  or  its  stockholders 
no  amount  of  ratification  by  those  authorized  to  make  the  con- 
tract will  make  it  valid. 

4.  Where  the  officers  of  a  corporation  make  a  contract  with 
third  parties  in  regard  to  matters  apparently  within  their  cor- 
porate powers,  but  which  upon  the  proof  of  extrinsic  facts  (of 
which  such  parties  had  notice),  lie  beyond  their  powers,  the 
corporation  must  be  held,  unless  it  may  avoid  liability  by  taking 
timely  steps  to  prevent  loss  or  damage  to  such  third  parties ;  for 
in  such  cases  the  third  party  is  innocent,  and  the  corporation  or 
stockholders  less  innocent  for  having  selected  officers  not  worthy 
of  the  trust  reposed  in  them. 

5.  This  class  of  eases  may  be  illustrated  by  that  where  the 
officers  of  a  corporation,  empowered  to  build  and  operate  a  cer- 
tain line  of  railroad,  purchase  iron  to  be  used  for  another  line, 
without  the  knowledge  of  the  vendee.    So  in  case  of  Humphrey. 
v.  Patrons'  Mercantile  Association,  50  Iowa  607,  the  debts  of 
the  corporation  were,  by  its  articles,  limited  to  a  certain  amount, 
but  the  officers  of  the  association,  in  dealing  with  Humphrey, 
exceeded  that  amount  without  his  knowledge,  or  means  of  knowl- 
edge, and  the  corporation  was  held.    Thompson  v.  Lambert,  44 
Iowa  239,  belongs  to  the  same  class  of  cases,  with  the  addition 
that  in  the  last  case  the  stockholders,  who  objected  to  what  they 
termed  an  ultra  vires  contract,  were  charged  with  knowledge  of 
and  participation  in  the  act  they  claimed  to  be  illegal,  and  wore 
in  no  situation  to  complain.     A  corporation  cannot  retain  ben- 


104  PARTIES  TO  CONTRACT. 

efits  derived  from  an  ultra  vires  contract,  and  at  the  same  time 
treat  the  contract  as  entirely  void,  unless  perhaps  in  cases  where 
the  other  party  has  assisted  willfully  in  putting  it  beyond  the 
power  of  the  corporation  to  return  what  is  received  on  such  con- 
tract. 

6.  Where  the  corporation  has  permitted  its  officers  to  engage 
in  ultra  vires  transactions,  and  in  the  prosecution  of  such  trans- 
actions the  officers  commit  a  wrong  or  tortious  act  without  the 
fault  of  the  injured  party,  the  corporation  is  estopped  from  tak- 
ing advantage  of  the  ultra  vires  character  of  the  original  under- 
taking. 

These  rules  do  not  cover  all  cases,  but  are  sufficient  to  guide 
us  in  the  determination  of  the  question  of  this  case. 

The  case  of  Bissell  v.  Michigan  Southern  &  N.  I.  E.  Co.,  22 
N.  Y.  258,  is  relied  upon  by  appellee  as  authority  for  holding 
corporations  on  ultra  vires  contracts.  It  is  true  that  the  opinion 
of  COMSTOCK,  J.,  in  that  case,  appears  not  to  be  in  accord  with 
the  wTell-established  doctrine  of  ultra  vires  as  applied  to  cor- 
porations, but  he  says  (page  275) :  "I  do  not  deny  the  validity 
of  this  excuse  in  many  cases,  I  may  say  in  all  cases  where  it  can 
be  received  without  doing  great  injustice  to  others.  If  the  per- 
son dealing  with  a  corporation  knows  of  the  wrong  done  or  con- 
templated, and  he  cannot  show  the  acquiescence  of  the  share- 
holder, he  ought  not  to  complain  if  he  cannot  enforce  the  con- 
tract. Aside  from  the  law  of  corporations,  agreements  which  in- 
volve or  propose  a  violation  of  trust  will  not  be  enforced  by  the 
courts  where  no  greater  equities  demand  it."  In  that  case  the 
defendants  had  constructed  a  railroad  not  authorized  by  their 
charter,  and  for  some  years  had  been  operating  the  same,  and 
made  a  contract  to  carry  plaintiff  over  the  road.  He  was  in- 
jured in  a  collision  occasioned  by  the  negligence  of  defendants' 
employees.  The  plaintiff's  cause  of  action  did  not  arise  out 
of  the  ultra  vires  contract  to  carry  him,  but  out  of  the  wrong 
done  on  the  way,  and  to  which  wrong  he  was  not  a  contributing 
party.  This  view  is  consistent  with  the  sixth  proposition  above, 
and  is  the  one  in  which  SHELDON,  J.,  sustained  the  right  of  re- 
covery in  a  very  able  opinion  in  the  same  case,  and  certainly  in 
line  with  well-established  authorities,  and  in  support  of  the 
doctrine  of  ultra  vires.  None  of  the  other  judges  sustained  the 
views  of  COMSTOCK,  J.,  but  all  except  Denio  sustained  the  right 
of  recovery.  A  different  question  would  have  been  presented  in 


LUCAS  v.  WHITE  LINE  TRANSFER  CO.  105 

that  case  if  the  plaintiff  had  sued  to  recover  for  failure  of  de- 
fendants to  transport  him  according  to  agreement. 

In  the  case  now  before  us  the  plaintiff  seeks  to  recover  con- 
tribution from  the  corporation  as  co-surety  on  the  bond  of  the 
brewing  company,  and  claims  (1)  that  the  contract  of  suretyship 
was  within  the  defendant's  corporate  powers,  and  (2)  that  if 
it  were  not  within  defendant's  corporate  powers,  it  has  so  acted 
on  the  contract  as  to  now  estop  it  from  pleading  ultra  vires.  It 
is  claimed  that  the  language  of  the  articles  of  incorporation, 
'defining  its  business  to  be  "the  general  freight  and  transfer 
business,  and  such  other  business  as  may  not  be  inconsistent 
therewith, "  is  of  such  a  general  character  as  to  cover  almost  any 
kind  of  business.  This  position,  it  seems  to  us,  is  not  tenable, 
for  the  language  itself  implies  that  there  may  be  business  in- 
consistent with  the  general  freight  and  transfer  business.  The 
name  of  the  corporation  indicated  its  principal  business,  and 
the  language  is  equivalent  to  saying  it  may  do  such  other  busi- 
ness as  is  consistent  with  the  freight  and  transfer  business. 
"Consistent'.'  means  standing  together,  or  in  agreement  with. 
If  the  capital  of  the  company  is  diverted  into  some  other  line  of 
business  entirely  foreign  to  the  freight  and  transfer  business, 
it  would  be  to  the  detriment  of,  and  therefore  not  consistent 
with  the  latter.  But  whatever  meaning  may  be  attached  to  the 
language  of  the  articles,  it  is  quite  certain  it  cannot  include  the 
contract  of  suretyship  in  question.  The  simple  act  of  going 
security  for  another  is  out  of  the  line  of  the  prosecution  of  any 
business.  It  is  a  mere  accommodation,  and  it  cannot  be  assumed 
that  the  articles  gave  the  officers  of  defendant  any  power  to 
jeopardize  its  capital  in  any  such  venture. 

"It  is  no  part  of  the  ordinary  business  of  commercial  corpo-  ^ 
rations,  and  a  fortiori,  still  less  so  of  non-commercial  corpora- 
tions, to  become  surety  for  others.  Under  ordinary  circum- 
stances, without  positive  authority  in  this  behalf  in  the  grant  of 
corporate  power,  all  engagements  of  this  description  are  ultra 
vires,  whether  in  the  indirect  form  of  going  on  accommodation 
bills,  or  otherwise  becoming  liable  for  the  debts  of  others. 
Green's  Brice  Ultra  Vires,  252;  Madison,  etc.,  Plankroad  Co.  v. 
Watertown,  etc.,  Plankroad  Co.,  7  Wis.  59. 

It  seems  to  us  clear  that  the  corporation  defendant  had  no 
power  to  make  the  contract  of  suretyship  in  question,  and  for 
the  same  reasons,  it  is  just  as  clear  that  the  officers  of  the  cor- 


108  PARTIES  TO  CONTRACT. 

poration  had  no  power  to  sign  the  letter  of  May  27,  purporting 
to  assume  the  payment  of  the  amount  stipulated  in  the  bond. 
Both  instruments,  so  far  as  the  defendant  was  concerned,  were 
illegal  and  void,  and  no  attempted  ratification  by  parties  having 
no  power  to  make  the  original  contract  could  make  it  valid,  no 
matter  how  often  such  attempts  were  made.  It  is  questionable 
on  the  authorities  whether  even  the  consent  of  all  the  stockhold- 
ers could  make  the  contract  valid,  when  it  was  so  plainly  beyond 
the  powers  granted  by  their  corporation,  which  was  in  duty  to 
the  legislative  authority,  held  to  apply  its  capital  to  the  prosecu- 
tion of  the  business  for  which  it  was  organized  and  for  which 
it  received  the  grant  of  power.  But  this  we  need  not  determine. 
It  is  very  clear  however  on  authority  and  on  principle,  that 
there  could  not  be  a  ratification  without  the  consent  of  all  the 
stockholders. 

It  appears  from  the  record  that  the  note  sued  on  in  attach- 
ment proceedings,  and  the  proceedings  themselves,  were  taken 
and  carried  through  without  the  knowledge  or  assent  of  the 
stockholders  or  directors,  and  that  the  corporation  defendant  re- 
ceived no  benefit  therefrom,  for  whatever  was  realized  there- 
in was  applied  on  the  contract  of  suretyship,  which  was  void 
as  against  the  defendant,  and  was  so  applied  by  plaintiff  or 
other  unauthorized  parties.  Tracy  v.  Guthrie  Co.  Agr'l  Soc., 
47  Iowa  27. 

It  is  further  claimed  that  the  corporation  defendant,  by  its 
signature  to  the  bond  and  letter,  induced  the  plaintiff  to  become 
liable  on  the  bond  and  letter  also,  and  induced  plaintiff  also  to 
pay  the  amount  of  the  bond.  It  is  stated  however  in  the  peti- 
tion, that  the  defendant  refused  to  pay  its  half,  and  it  must  be 
borne  in  mind,  in  view  of  what  has  preceded,  that  the  brewing 
company  and  plaintiff  were  all  the  while,  at  and  after  the  time 
of  signing  the  bond,  charged  with  notice  that  the  officers  of  the 
defendant  were  not  authorized  to  bind  the  defendant,  and  that 
attempts  to  do  so  on  their  part  were  illegal  and  void;  and  in 
this  respect  defendant's  stockholders  are  innocent  parties,  while 
the  plaintiff  is  not. 

We  are  therefore  of  the  opinion  that  the  Circuit  Court  erred 
in  sustaining  the  demurrer  to  the  answer  of  the  transfer  com- 
pany, and  its  ruling  is  reversed  and  the  cause  remanded. 

Judgment  reversed. 


BEST  BREWING  CO.  v.  KLASSEN.  107 

BEST  BREWING  CO.  v.  KLASSEN. 

185  III.  37;  57  N.  E.  Rep.  20. 

Appeal  from  appellate  court,  First  district. 

Action  by  Kunigunda  Klassen  against  the  Best  Brewing  Com- 
pany of  Chicago,  of  debt,  upon  an  appeal  bond.  A  judgment 
for  plaintiff  was  affirmed  by  the  appellate  court  (85  111.  App. 
464),  and  defendant  appeals.  Reversed. 

WILKIN,  J.  This  is  an  action  of  debt  upon  an  appeal  bond. 
In  a  forcible  entry  and  detainer  proceeding  before  a  police 
magistrate  in  the  city  of  Chicago,  appellee,  as  plaintiff,  re- 
covered a  judgment  against  Ruel  G.  Rounds  for  restitution  of 
certain  property.  Rounds  appealed  to  the  county  court  of  Cook 
county,  filing  an  appeal  bond  as  required  by  the  statute.  This 
bond  was  for  $2,000,  conditioned  as  provided  by  statute  in  such 
cases,  and  was  signed  by  Rounds  and  appellant,  as  his  surety; 
the  latter 's  execution  of  it  being  as  follows:  "The  Best  Brewing 
Company  of  Chicago  (Seal),  by  Charles  Hasterlik,  Its  President 
(Seal)."  In  the  county  court  judgment  was  again  rendered  for 
the  plaintiff.  Upon  the  failure  of  Rounds  or  the  brewing  com- 
pany to  comply  with  the  terms  of  that  judgment,  this  proceed- 
ing was  commenced  in  the  circuit  court  of  Cook  county  to  re- 
cover on  the  appeal  bond.  In  defense  to  the  action,  the  brewing 
company,  by  its  pleadings,  denied  that  the  bond  was  its  deed; 
alleged  that  the  making  of  the  same,  as  to  it,  was  unauthorized, 
and  that  such  act  was  not  within  the  power  of  the  corporation. 
Issues  were  joined,  and  a  trial  had  by  jury.  At  the  close  of 
plaintiff's  evidence,  a  motion  was  made  to  instruct  the  jury  to 
find  for  the  brewing  company,  but  these  motions  were  overruled. 
The  court  then  took  the  case  from  the  jury,  by  instructing  it  to 
render  a  verdict  for  the  plaintiff,  Klassen,  for  $1,321.50.  This 
being  done,  judgment  for  that  sum  was  duly  entered,  and  ap- 
pellant appealed  to  the  appellate  court  for  the  First  district, 
where  the  judgment  below  was  affirmed,  and  it  now  brings  the 
case  here  upon  further  appeal. 

The  chief  error  insisted  upon  by  appellant  is  that  the  circuit 
court  held  the  bond  sued  on  to  be  its  act  and  deed, — the  con- 
tention being  that  the  powers  of  the  company,  as  a  corporation, 
are  limited  by  its  charter  to  those  which  are  express  or  implied ; 
that  its  express  powers  are  to  "manufacture  and  sell  beer,  ale, 


108  PARTIES    TO    CONTRACT. 

and  porter,  and  carry  on  a  general  brewing  business,  in  all  its 
branches";  that  the  implied  powers  it  possesses  are  only  those 
which  may  be  implied  as  necessary  to  carry  into  effect  one  or 
more  of  those  expressed;  and  that  the  signing  of  this  appeal  bond 
comes  under  neither  of  these  heads,  but  was  an  act  ultra  vires, 
and  therefore  not  binding  upon  the  corporation.  Appellee  in- 
sists— First,  that  the  act  was  within  the  corporate  power  of 
appellant;  or,  second,  although  in  excess  of  its  corporate  power, 
yet,  having  made  the  bond  and  enjoyed  certain  benefits  arising 
therefrom,  it  is  now  estopped  to  make  the  defense  of  ultra 
vires. 

The  general  rule  is  that  a  corporation  can  do  only  those  acts 
which  are  within  the  scope  of  its  charter,  and,  if  the  signing  of 
the  bond  in  question  as  surety  was  an  act  not  originally  with- 
in the  express  or  necessarily  implied  powers  of  the  corporation, 
it  is  void,  and  no  subsequent  act  could  make  it  valid,  by  way  of 
estoppel.  It  was  so  held  in  National  Home  Building  &  Loan 
Ass'n  v.  Home  Sav.  Bank,  181  111.  35,  54  N.  E.  619,  where  the 
decisions  of  this  court  are  reviewed;  and  we  there  said  (page 
44,  181  111.,  and  page  621,  54  N.  E.) :  "If  there  is  no  power  to 
make  the  contract,  there  can  be  no  power  to  ratify  it;  and  it 
would  seem  clear  that  the  opposite  party  could  not  take  away 
the  incapacity,  and  give  the  contract  vitality  by  doing  something 
under  it.  It  would  be  contradictory  to  say  that  a  contract  is 
void  for  an  absolute  want  of  power  to  make  it,  and  yet  it  may 
become  legal  and  valid  as  a  contract  by  way  of  estoppel  through 
some  other  act  of  the  party  under  such  incapacity,  or  some  act  of 
the  other  party  chargeable  by  law  with  notice  of  the  want  of 
power."  In  that  case  it  is  also  said:  "The  cases  in  this  court 
where  the  corporation  has  been  held  to  be  estopped  have  been 
where  the  act  complained  of  was  within  the  general  scope  of  the 
corporate  powers."  In  the  case  of  Brewing  Co.  v.  Flannery,  137 
111.  309,  27  N.  E.  286,  relied  upon  by  appellee,  the  defense  of 
ultra  vires  was  invoked,  and  it  was  held  that  the  corporation  was 
estopped  to  make  that  defense^  inasmuch  as  it  had  enjoyed  the 
benefit  of  the  act;  but  there  the  act  in  question  (which  was  the 
leasing  of  a  building  in  which  to  conduct  a  saloon)  was  within 
the  express  power  of  the  corporation. 

"We  think  the  primary  question  here  is  not  whether  appellant 
has  reaped  a  benefit  from  the  act  of  becoming  surety  for  Rounds 
upon  the  bond,  but  whether  the  act  of  signing  it  was  within  the 


BEST  BREWING  CO.  V.  KLASSEN.  109 

scope  of  its  corporate  authority.  The  purpose  of  the  corpora- 
tion, as  expressed  in  its  charterz  is  to  manufacture  and  sell  ale, 
beer,  and  porter,  and  carry  on  a  general  brewing  business.  It 
would  seem  no  acts  could  be  more  unlike  than  the  doing  of 
those  authorized  by  the  charter  of  the  company,  and  the  sign- 
ing of  appeal  bonds  as  surety.  The  instrument  was  executed  in 
a  suit,  not  by  or  against  the  corporation,  but  by  a  third  person 
against  another  to  recover  possession  of  a  house.  Prima  facia, 
the  signing  by  the  company  of  an  appeal  bond  in  such  a  suit  was 
an  act  beyond  the  purpose  for  which  it  was  organized,  and  con- 
sequently illegal.  If  it  had  been  shown  that  it  was  executed 
clearly  for  the  purpose  of  promoting  or  protecting  its  own  busi- 
ness of  brewing  or  selling  beer,  etc., — that  is  to  say,  if  the  act 
had  been  reasonably  necessary  to  accomplish  the  end  for  which 
the  corporation  was  formed, — it  would  have  been  within  the" 
scope  of  the  corporate  power.  But  it  cannot  be  held  that  every 
act  in  furtherance  of  the  interests  of  a  corporation  is  intra  vires. 
Many  acts  can  be  suggested,  which,  though  beneficial  to  the 
business  of  a  corporation,  are  too  remote  from  its  general  pur- 
poses to  be  deemed  reasonably  within  its  implied  powers.  What 
is  and  what  is  not  too  remote  must  be  determined  accord- 
ing to  the  facts  of  each  case.  The  rule  has  been  stated  to  be: 
In  exercising  powers  conferred  by  its  charter,  a  corporation 
"may  adopt  any  proper  and  convenient  means  tending  directly 
to  their  accomplishment,  and  not  amounting  to  the  transaction 
of  a  separate,  unauthorized  business."  Clark  v.  Farrington, 
11  Wis.  306.  In  the  case  of  Lucas  v.  Transfer  Co.,  70  Iowa 
541,  30  N.  W.  771,  59  Am.  Rep.  454,  where  a  corporation  char- 
tered for  the  purpose  of  doing  a  "general  freight  and  transfer 
business,  and  such  other  business  as  may  not  be  inconsistent 
therewith, ' '  was  sued  upon  a  bond  executed  by  it  as  surety  with 
another  corporation,  the  supreme  court  of  that  state  said :  ' '  The 
plaintiff  seeks  to  recover  contribution  from  the  corporation  as 
co-surety  on  the  bond  of  the  brewing  company,  and  claims  (1) 
that  the  contract  of  suretyship  was  within  the  defendant's  cor- 
porate powers;  and  (2)  that,  if  it  were  not  within  the  de- 
fendant's corporate  powers,  it  has  so  acted  on  the  contract  as  to 
now  estop  it  from  pleading  ultra  vires.  *  *  *  Whatever 
meaning  may  be  attached  to  the  language  of  the  articles,  it  is 
quite  certain  it  cannot  include  the  contract  of  suretyship  in 
question.  The  simple  act  of  going  security  for  another  is  out 


110  PARTIES    TO     CONTRACT. 

of  the  line  of  the  prosecution  of  any  business.  It  is  a  mere  ac- 
commodation, and  it  cannot  be  assumed  that  the  articles  gave 
the  officers  of  defendant  any  power  to  jeopardize  its  capital  in 
any  such  venture."  Quoting  from  other  authorities,  it  is  there 
further  said:  "It  is  no  part  of  the  ordinary  business  of  com- 
mercial corporations,  and,  a  fortiori,  still  less  so  of  noncom- 
mercial corporations,  to  become  surety  for  others.  Under  ordi- 
nary circumstances,  without  positive  authority  in  this  behalf 
in  the  grant  of  corporate  power,  all  engagements  of  this  de- 
scription are  ultra  vires,  whether  in  the  indirect  form  of  going 
on  accommodation  bills,  or  otherwise  becoming  liable  for  the 
debts  of  others.  Green 's  Brice,  Ultra  Vires,  252 ;  Madison,  W.  & 
M.  Plank  Road  Co.  v.  Watertown  &  P.  Plank-Road  Co.,  7  Wis. 
59."  These  authorities  are  clearly  in  point  here,  and  lead  to 
the  conclusion  that  the  act  of  appellant  in  signing  this  bond,  in- 
stead of  being  the  exercise  of  a  delegated  authority,  was  an  at- 
tempt to  execute  powers  not  conferred  upon  it,  either  expressly 
or  by  implication. 

In  reaching  this  conclusion  we  have  not  overlooked  the  con- 
tention of  appellee  that  the  execution  of  the  bond  by  appellant 
was  in  furtherance  of  its  business,  and  that  this  fact  has  been 
found  adversely  to  appellant  by  the  appellate  court,  and  is  there- 
fore open  to  review  here.  This  position  is  based  upon  the 
assumption  that  Rounds  was,  at  the  time  of  the  suit  against  him 
for  possession  of  the  premises,  engaged  in  selling  beer  in  the 
house,  and  that  appellant  was  furnishing  him  the  beer;  that  the 
bond  was  executed  on  the  part  of  the  brewing  company  in  order 
to  enable  him  to  retain  possession  of  the  property  and  continue 
his  business  therein,  and  to  make  further  purchases  from  the 
company.  If  all  this  were  true,  the  benefits  to  accrue  to  the  cor- 
poration would  certainly  be  of  the  most  precarious  and  remote 
character.  But  we  have  searched  the  record  in  vain  for  evidence 
tending  to  support  the  assumption.  The  testimony  wholly  fails 
to  prove,  nor  does  it  fairly  tend  to  prove,  that  Rounds  was 
engaged  in  any  occupation  calculated  to  promote  the  business  of 
appellant,  or  that  the  business  of  the  corporation  was  promoted 
or  benefited  in  any  degree  by  reason  of  the  execution  of  the 
bond.  Treating  these  as  questions  of  fact  material  to  the  de- 
cision of  the  case,  they  are  open  to  review  in  this  court  as  a 
question  of  law,  under  the  assignment  of  errors  questioning  the 
ruling  of  the  trial  court  in  refusing  the  motion  of  defendant  for 


OWEN  v.  LONG.  Ill 

a  peremptory  instruction  to  find  for  it,  made  at  the  close  of  all 
the  evidence.  Plaintiff  belqw  wholly  failed  to  make  out  a  cause 
of  action  against  this  appellant,  and  the  circuit  court  improperly 
refused  to  instruct  the  jury  to  return  a  verdict  in  its  favor.  The 
judgment  of  the  appellate  court  will  accordingly  be  reversed. 

Judgment  reversed. 


c.    Infant  liable  as  surety  if  he  ratifies  contract  after  becoming 
of  age. 

OWEN  v.  LONG.     1873. 

112  Mass.  403. 

Contract  upon  a  negotiable  promissory  note  for  $190,  dated 
August  21,  1872,  and  signed  by  the  defendant  Gammon,  as  prin- 
cipal, and  by  the  other  defendants  as  sureties.  The  writ  was 
dated  February  20,  1873. 

At  the  trial  in  the  Superior  Court,  before  Allen,  J.,  Long  re- 
lied upon  the  defence,  that,  at  the  time  he  signed  the  note,  he 
was  a  minor,  and  contended  that  he  became  twenty-one  years  of 
age  February  11,  1873.  The  plaintiff  testified,  against  Long's 
objection,  that,  two  or  three  days  before  the  commencement  of 
the  action,  he  had  a  conversation  with  Long  which  tended  to 
show  that  he,  Long,  at  that  time  promised  to  pay  the  note. 

The  defendant  Long  was  a  witness,  and  upon  cross-examina- 
tion testified  that,  at  the  time  he  signed  the  note,  he  expected 
that  Gammon  would,  if  he  got  the  money,  pay  him  for  services 
for  which  he  was  then  owing  him ;  that  on  the  same  or  the  next 
day  Gammon  did  pay  him  $40,  which  he  supposed  was  a  part  of 
the  money  lent  by  the  plaintiff  to  Gammon,  although  he  did 
not  know  that  it  was. 

The  defendant  Long  requested  the  court  to  instruct  the  jury 
that  a  minor  cannot  make  a  contract  binding  himself  as  a  surety 
for  another;  that  if  he  was  a  minor  at  the  time  he  signed  this 
note,  the  note  as  against  him  was  void,  and  the  action  could  not 
be  maintained ;  and  that  the  note  could  not  be  made  valid  by  any 
promise  to  pay  it  made  after  his  coming  of  age.  The  court  de- 
clined so  to  instruct  the  jury,  but  instructed  them  that  if  Long 
was  a  minor  at  the  time  he  signed  the  note,  it  would  be  a  good 
defence,  unless,  after  he  became  of  age,  he  made  a  direct  promise 


112  PARTIES    TO     CONTRACT. 

to  pay  it;  that  if,  after  arriving  at  full  age,  and  knowing  that 
he  had  the  defence  of  minority  to  the  note,  he  promised  to  pay 
it,  he  was  liable,  although  he  was  a  minor  when  he  signed  it. 

The  jury  returned  a  verdict  against  all  the  defendants,  and 
the  defendant  Long  excepted. 

GRAY,  C.  J.  It  cannot  be  held  as  matter  of  law  that  to  sign  a 
promissory  note  as  surety  is  necessarily  not  beneficial  to  an  in- 
fant. It  may  or  may  not  be  beneficial  to  him,  according  to  the 
actual  circumstances  of  the  transaction ;  and,  at  the  trial  of  this 
case,  there  was  some  evidence  that  the  defendant  at  the  time  of 
signing  the  note  in  suit  expected  to  receive,  and  did  afterwards 
actually  receive,  some  benefit  from  so  doing.  As  his  contract 
might  be  beneficial  to  him,  it  was  not  absolutely  void,  but  only 
voidable,  and  would  be  made  binding  on  him  by  a  direct  promise 
to  pay  the  note,  after  coming  of  age,  and  knowing  that  he  had  a 
defence  to  it  by  reason  of  his  infancy.  Whitney  v.  Dutch,  14 
Mass.  457 ;  Reed  v.  Batchelder,  1  Met.  559 ;  Peirce  v.  Tobey,  5 
Met.  168 ;  Bradford  v.  French,  110  Mass.  365 ;  Harris  v.  Wall, 
1  Exch.  122;  Curtin  v.  Patton,  11  S.  &  R.  305;  Hinely  v. 
Margaritz,  3  Penn.  State  428. 

Exceptions  overruled. 


EARNER  v.  DIPPLE.     1876. 
31  Ohio  State  72;  27  Am.  Rep.  496. 

Motion  for  leave  to  file  a  petition  in  error  to  the  District 
Court  of  Clarke  county. 

The  original  action  was  brought  by  Dipple  against  Harner  on 
an  undertaking  for  stay  of  execution,  executed  by  the  defendant 
during  his  minority.  It  appears  that  the  defendant  arrived  at 
his  majority  before  the  period  of  stay  expired,  and  that  after 
the  expiration  of  the  stay  he  acknowledged  his  liability,  and 
promised  the  plaintiff,  to  whom  the  undertaking  was  made,  to 
pay  the  amount  of  the  judgment  stayed.  Upon  this  state  of 
facts  judgment  was  rendered  for  the  plaintiff  in  the  court  of 
common  pleas;  which  judgment  was  afterward  affirmed  by  the 
district  court. 

To  reverse  these  judgments  leave  is  now  asked  to  file  a  petition 
in  error. 


HARNER    V.    DIPPLE.  113 

MclLVAiNE,  J.  The  question  made  is,  was  the  undertaking 
sued  on  absolutely  void,  or  only  voidable.  If  void,  it  was  not 
subject  to  ratification;  if  voidable  merely,  it  may  be  enforced 
after  ratification. 

Having  considered  this  question  upon  principle,  as  well  as 
upon  authority,  we  are  constrained  to  hold  that  the  undertaking 
was  voidable  only,  and  that  after  ratification  it  became  a  valid 
and  binding  engagement. 

In  disposing  of  this  case,  we  make  no  note  of  those  principles 
which  control  cases  where  an  infant2  by  reason  of  immaturity 
and  natural  incapacity,  is,  in  fact,  unable  to  assent  to  the  terms 
of  an  alleged  contract.  When  this  undertaking  was  executed  it 
contained  every  element  of  a  valid  contract,  save  only,  that  the 
party  was  under  twenty-one  years  of  age. 

Except  for  necessaries,  the  law  grants  to  infants  immunity 
from  liability  on  their  contracts.  This  immunity  is  intended 
for  their  protection  against  imposition  and  imprudence,  and  is 
continued  after  majority  as  a  mere  personal  privilege.  This 
privilege  of  immunity,  after  majority,  is  not  given  because  of 
the  actual  or  supposed  incapacity  of  an  infant  to  enter  into 
contracts  intelligently  and  prudently.  If  actual  incapacity 
existed,  the  privilege  of  infancy  would  not  be  needed  for  the 
purpose  of  defense.  And  it  is  contrary  to  our  knowledge  of 
human  nature,  that  all  infants  are  incapable  of  intelligently  and 
prudently  entering  into  engagements  and  assuming  burdens.  It 
is  a  matter  of  favor  intended  as  a  shield  and  compensation  for 
the  want  of  that  greater  wisdom  and  prudence  which  time  and 
experience  usually  teach. 

But,  whatever  may  have  been  the  natural  capacity  of  the  in- 
fant, whenever  he  arrives  at  majority,  a  time  fixed  by  an  arbi- 
trary rule  which,  in  the  nature  of  things,  can  not  affect  the 
personal  capabilities  of  its  subject,  the  law  presumes  that  he 
has  acquired  all  the  wisdom  and  prudence  necessary  for  the 
proper  management  of  his  affairs;  hence,  the  law  imposes  upon 
him  full  responsibility  for  all  his  acts  and  contracts. 

In  this  new  relation,  it  becomes  his  moral  duty,  and  for  its 
discharge  he  is  invested  with  legal  capacity,  to  affirm  and  per- 
form, or  to  disavow,  at  his  election,  all  his  previous  contracts 
of  imperfect  obligation.  Contracts  for  necessaries  are  of  perfect 
obligation,  and,  therefore,  he  can  notdisaffirm  them.  Contracts 

8 


114  PARTIES    TO     CONTRACT. 

founded  on  illegal  considerations  are  of  no  obligation,  and,  there- 
fore, may  not  be  affirmed. 

The  appointment  of  an  agent  or  attorney  to  make  contracts 
is,  perhaps,  inconsistent  and  repugnant  to  the  privilege  of  in- 
fancy, for  the  reason,  among  others  that  might  be  named,  that 
it  is  imparting  a  power  which  the  principal  does  not  possess; 
that  of  performing  valid  acts.  But,  outside  of  these  exceptions, 
which  are  based  on  special  grounds,  we  see  no  reason  why  the 
power  should  be  denied,  to  ratify  any  contract  which,  as  an 
adult,  he  might  originally  make.  The  power  of  disaffirmance 
being  coextensive,  it  is  all  that  is  needed  for  his  protection. 

If,  in  the  case  before  us,  the  ratification  had  been  made  by 
payment,  instead  of  a  promise  to  pay,  its  binding  effect  would 
not  be  doubted.  Why,  therefore,  should  not  the  promise  to  pay 
be  binding  also  ?  There  is  no  question  about  consideration.  The 
consideration  which  supported  the  original  promise  is  sufficient 
to  support  the  ratifying  promise.  The  only  contention  here  is, 
that  the  original  promise  was  void  by  reason  of  infancy,  not  for 
want '  of  consideration.  If,  therefore,  actual  performance  by 
payment  would  have  been  binding,  so  should  the  promise  to 
perform ;  and  this,  too,  without  regard  to  the  fact  whether  or  not 
the  infantile  contract  was  beneficial  or  prejudicial.  The  prin- 
ciples of  jurisprudence  are  not  violated  by  the  performance  of  a 
contract  prejudicial  to  the  party.  Indeed,  a  person,  sui  juris,  is 
as  strongly  obligated  by  his  contracts  prejudicial  as  by  those 
beneficial  to  himself ;  and  the  same  principle  should  apply  where 
a  person,  sui  juris,  ratifies  and  confirms  his  contract  of  infancy. 

The  plaintiff  in  error,  however,  relies  chiefly  on  the  authority 
of  decided  cases,  and  claims  the  settled  law  to  be  that  all  con- 
tracts of  an  infant  prejudicial  to  him  are  absolutely  void,  and 
that  a  contract  of  suretyship  is  of  that  class. 

In  Swan 's  late  treatise,  among  contracts  of  infants  which  have 
been  decided  to  be  void,  is  mentioned  that  of  suretyship,  but  the 
author,  in  speaking  of  the  state  of  the  authorities,  pithily  and 
•truthfully  remarks,  "What  contracts  of  an  infant  are  void,  and 
what  are  merely  voidable,  nobody  knows." 

Keanes  v.  Bagcott,  2  H.  Black.  511,  decided  in  1795,  appears 
to  be  a  leading  case.  The  contract  of  an  infant  was  held  in 
that  case  to  be  voidable  only,  but  in  the  opinion  of  C.  J.  EYRE 
a  rule  was  stated,  wherein  certain  of  such  contracts  are  said  to 
be  void.  The  rule  was  thus  stated:  "When  the  court  can  pro- 


HARNER    v.    DIPPLE.  115 

nounce  the  contract  to  be  for  the  benefit  of  the  infant,  as  for 
necessaries,  it  is  good;  when  to  his  prejudice,  it  is  void;  and 
where  the  contract  is  of  an  uncertain  nature  as  to  benefit  or 
prejudice,  it  is  voidable  only  at  the  election  of  the  infant."  This 
rule,  modified  so  as  to  declare  that  a  contract  necessarily  prejudi- 
cial to  the  infant  is  void,  has  been  adopted  in  many  later  cases, 
both  in  England  and  in  this  country.  But  the  current  of  more 
recent  decisions  repudiates  the  distinction  between  void  and 
voidable  contracts,  on  account  of  their  beneficial  or  prejudicial 
nature,  and  holds  them  all  to  be  voidable  merely;  and  the  more 
recent  decisions  of  courts  still  adhering  to  the  distinction,  hold 
some  contracts  voidable  only,  which  were  before  held  to  be  void. 
Thus,  in  Owen  v.  Long,  112  Mass.  403,  a  surety  contract  was 
held  to  be  voidable  only,  for  the  reason  that  such  contract,  as 
matter  of  law,  can  not  be  said  to  be  necessarily  prejudicial  to 
the  surety.  Also  an  account  stated  is  held  to  be  voidable  only. 
Williams  v.  Moor,  11  M.  &  W.  255.  Also  a  conveyance  by  lease 
and  release.  Touch  v.  Parsons,  3  Barrows,  1794. 

The  following  cases  are  to  the  effect  that  an  infant's  contract 
of  suretyship  is  merely  voidable,  and  may  be  ratified.  They  also 
show,  with  more  or  less  force  and  directness,  that  the  distinction 
between  void  and  voidable  contracts  of  infants,  on  the  ground  of 
benefit  or  prejudice,  is  not  sound.  Curtin  v.  Patton,  11  Serg. 
&  R.  305;  Hinely  v.  Marganitz,  3  Barr,  428;  Gatchin  v.  Crom- 
ach,  13  Ver.  330;  Vaughn  v.  Darr,  20  Ark.  600;  Shropshire  v. 
Burns,  46  Ala.  108 ;  Williams  v.  Moore,  11  M.  &  W.  256 ;  Fetrow 
v.  Wiseman,  40  Ind.  148 ;  Fonda  v.  Van  Home,  15  Wend.  631 ; 
Scott  v.  Buchanan,  2  Humph.  468;  Cole  v.  Pennoyer,  14  111. 
158;  Cummings  v.  Powell,  8  Texas,  80;  1  J.  J.  Marshall,  236; 
Mustard  v.  Wohlford's  Heirs,  15  Grattan,  329. 

In  Massachusetts,  where  the  doctrine  was  approved  that  the 
acts  of  an  infant  are  void,  which  not  only  apparently  but 
necessarily  operate  to  his  prejudice  (Oliver  v.  Clop,  13  Mass. 
237),  it  was  afterward  said  by  Chief  Justice  PARKER,  in  Whit- 
ney v.  Dutch,  14  Mass.  457 :  ' '  Perhaps  it  may  be  assumed  as  a 
principle  that  all  simple  contracts  by  infants,  which  are  not 
founded  on  an  illegal  consideration,  are  strictly  not  void,  but 
only  voidable,  and  may  be  made  good  by  ratification.  They  re- 
main a  legal  substratum  for  a  future  assent,  until  avoided  by  the 
infant;  and  if,  instead  of  avoiding,  he  confirm  them,  when  he 
has  legal  capacity  to  make  a  contract,  they  are,  in  all  respects, 


116  PARTIES    TO     CONTRACT. 

•like  contracts  made  by  adults."  And  in  1840  (Reed  v.  Batch- 
elder,  1  Met.  559),  Chief  Justice  SHAW  said:  ''The  question, 
what  acts  of  an  infant  are  voidable  and  what  void,  is  not  very 
definitely  settled  by  the  authorities;  but,  in  general,  it  may  be 
said  that  the  tendency  of  modern  decisions  is  to  consider  them  as 
voidable,  and  thus  leave  the  infant  to  affirm  or  disaffirm  them 
when  he  comes  of  age,  as  his  own  views  of  his  interest  may  lead 
him  to  elect." 

So  that,  Mr.  Parsons,  in  his  work  on  contracts,  Vol.  L.,  p.  294, 
6th  ed.,  says:  "The  better  opinion,  however,  as  may  be  gath- 
ered from  the  latter  cases,  cited  in  our  notes,  seems  to  be  that 
an  infant 's  contracts  are,  none  of  them,  or  nearly  none,  absolute- 
ly void ;  that  is,  so  far  void  that  he  can  not  ratify  them  after  he 
arrives  at  the  age  of  legal  majority." 

In  1  American  Leading  Cases,  5th  ed.,  p.  300,  it  is  said: 
"The  numerous  decisions  which  have  been  had  in  this  country 
justify  the  settlement  of  the  following  definite  rule  as  one  that  is 
subject  to  no  exceptions.  The  only  contract  binding  on  an 
infant  is  the  implied  contract  for  necessaries.  The  only  act 
which  he  is  under  a  legal  disability  to  perform  is  the  appoint- 
ment of  an  attorney.  All  other  acts  and  contracts,  executed  or 
executory,  are  voidable  or  confirmable  by  him  at  his  election," 
on  arriving  at  majority.  This  rule  has  been  quoted  and  ap- 
proved in  14  111.  158,  and  15  Grat.  329,  and  we  think  it  em- 
bodies the  better  reason. 

In  the  light  of  principle,  therefore,  as  well  as  by  the  weight 
of  the  later  authorities,  the  whole  question  should  be  thus  re- 
solved: The  privilege  of  infancy  is  accorded  for  the  protection. 
of  the  infant  from  injury,  resulting  from  imposition  by  others  or 
his  own  indiscretion.  That  object  is  fully  accomplished  by  con- 
ferring on  him  the  power  to  avoid  his  contracts,  or,  in  other 
words,  by  giving  him  immunity  from  liability  until  such  con- 
tracts are  ratified  by  himself  after  arriving  at  full  age.  And, 
again,  that  an  adult,  laboring  under  no  disability,  may  perform 
his  unexecuted  contracts  of  infancy,  whether  they  be  beneficial  or 
prejudicial  to  him,  and  that  he  will  be  bound  by  such  perform- 
ance, we  think,  is  a  proposition  too  plain  to  be  doubted.  If, 
therefore,  with  full  knowledge  of  the  facts,  he  ratifies  and  affirms 
them,  being  moved  thereto  by  his  own  sense  of  right  and  duty, 
he  should,  in  lawz  as  in  morals,  be  bound  to  their  performance. 

Motion  overruled. 


CARTER  v.  MOULTON.  117 

CHAPTER  IV. 

EXECUTION  OF  CONTRACT 

a.  The  principal,  in  procuring  the  signatures  of  sureties  to 
his  obligation,  acts  as  the  agent  of  those  who  have  already 
signed,  and  not  as  the  agent  of  the  obligee. 

CARTER  v.  MOULTON.     1893. 
51  Kan.  9;   32  Pac.  Eep.  633;  37  Am.  St.  Rep.  259. 

Error  from  district  court,  Marion  county;  Frank  Doster, 
Judge. 

Action  by  A.  L.  Moulton  against  Martha  A.  Carter  on  a 
promissory  note.  Plaintiff's  demurrer  to  the  answer  was  sus- 
tained, and  defendant  brings  error.  Affirmed. 

ALLEN,  J.  This  action  was  brought  by  A.  L.  Moulton  on  a 
promissory  note,  which  reads  as  follows:  "$600.00.  Marion, 
Kansas,  December  7,  1887.  Nine  months  after  date,  we  promise 
to  pay  to  the  order  of  A.  L.  Moulton,  at  the  Cottonwood  Valley 
Bank,  Marion,  Kansas,  six  hundred  dollars,  with  interest  at  12 
per  cent  per  annum  until  paid.  Value  received.  J.  M.  Wishart, 
R.  E.  Knapp,  R.  C.  Cable,  C.  E.  Foote,  M.  A.  Carter."  The  de- 
fendant, M.  A.  Carter,  filed  her  separate  answer,  which  reads 
as  follows,  (omitting  title:)  "Now  comes  the  defendant,  M.  A. 
Carter,  and  for  her  separate  answer  herein  says  that  the  con- 
sideration of  the  note  sued  on  by  the  plaintiff  herein  was  for 
money  borrowed  by  J.  M.  Wishart  of  and  from  the  plaintiff,  no 
part  of  which  was  ever  had  or  received  by  this  defendant ;  that 
this  defendant  signed  said  note  as  surety,  only,  for  said  Wishart, 
all  of  which  was  at  the  time  well  known  and  understood  by  the 
plaintiff;  that  this  defendant. signed  her  name  to  said  note  only 
as  an  escrow,  on  the  express  condition  that  said  Wishart^ the 
principal  in  said  note,  would  hold  the  same  as  such  escrow,  and 
not  deliver  it  to  the  plaintiff  until  he,  the  said  Wishart,  should 
t  execute  in  favor  of  said  plaintiff,  to  secure  the  payment  of  said 
note  and  interest,  a  mortgage  on  his  homestead  in  the  city  of 
Marion,  county  of  Marion,  state  of  Kansas,  and  upon  that  con- 
dition only  did  this  defendant  sign  her  name  to  said  note,  and 
not  otherwise;  and  that  defendant  never  delivered  said  note  to 
plaintiff,  nor  authorized  the  same  to  be  delivered,  and,  if  de- 
livered by  said  Wishart,  it  was  done  without  the  authority  or 


118  EXECUTION   OF    CONTRACT. 

x 

consent  of  defendant;  that  said  Wishart  failed,  neglected,  and  J 
refused  to  execute  said  mortgage  on  his  homestead,  in  favor  of 
said  plaintiff,  to  secure  the  payment  of  said  note  and  interest,  as 
aforesaid.  Wherefore,  said  note  is  not  the  act  and  deed  of  this 
defendant.  Defendant,  having  fully  answered,  asks  to  be  dis- 
charged with  her  costs. ' '  To  this  answer  the  plaintiff  demurred, 
and  the  district  court  sustained  the  demurrer,  and  the  plaintiff 
in  error  brings  the  case  here  to  review  that  decision. 

Counsel  for  the  plaintiff  in  error  contends  that  the  note  sued 
on  was  signed  by  the  plaintiff  in  error  as  surety,  only,  upon  an 
expressed  condition  which  was  never  performed,  and  that  the 
plaintiff  in  error  was  therefore  not  liable ;  that  the  note  is  void 
because  it  was  never  delivered  to  the  defendant  in  error  by  the 
plaintiff  in  error,  or  by  her  authority.  It  is  conceded  by  the 
demurrer  that  the  plaintiff  knew  the  fact  that  M.  A.  Carter 
signed  the  note  as  surety,  but  it  is  nowhere  averred  that  the 
plaintiff  knew  of  the  agreement  between  M.  A.  Carter  and  the 
principal  in  said  note,  with  reference  to  the  giving  of  a  mortgage- 
The  plaintiff  in  error  contends  that  the  delivery  of  the  note  by 
the  surety  to  the  principal  after  its  execution  by  the  surety, 
under  an  agreement  of  the  kind  stated  in  the  answer,  made  the 
instrument  an  esjpjpjfc.&nd  that  no  validity  could  be  given  to  it 
by  a  delivery  in  violation  of  the  terms  agreed  on  between  the 
parties. 

It  is  true  that  the  holder  of  an  instrument  placed  in  escrow 
can  give  it  no  validity,  generally  speaking,  by  a  delivery  in  vio- 
lation of  the  agreement.  In  order  to  make  the  instrument  an 
escrow,  however,  such  delivery  must  be  to  a  third  person,  not  a 
party  to  the  instrument.  See  Bouv.  Law  Die.  and  cases  therein 
cited;  State  v.  Potter,  63  Mo.  212.  The  note  in  this  case  was 
perfect  in  form  at  the  time  it  was  delivered  to  the  payee.  It  is 
not  claimed  that  the  principal  made  any  change  in  the  form 
of  the  note,  nor  in  the  signatures  thereto,  after  it  was  signed 
by  the  plaintiff  in  error.  It  is  the  fact  that  it  was  delivered  in 
violation  of  a  secret  understanding  between  the  principal  and 
the  surety,  which  plaintiff  in  error  claims  renders  the  note  void 
in  the  hands  of  the  payee,  who,  for  anything  that  appears  in  the 
note,  paid  full  value  for  it.  Many  authorities  are  cited  by  coun- 
sel to  sustain  the  proposition  that  the  note  is  void  as  to  the 
surety,  but  none  of  them  go  so  far  as  to  sustain  the  plaintiff's 
position  in  an  action  brought  on  a  negotiable  promissory  note. 


CARTER  v.  MOULTON.  119 

In  the  case  of  People  v.  Bostwick,  32  N.  Y.  445,  it  is  held  that 
a  bond  delivered  under  similar  circumstances  is  void  as  to  the 
surety;  and  in  the  case  of  Palling  v.  U.  S.,  4  Cranch,  219,  the 
same  doctrine  is  held.  The  New  York  case  comments  on  the 
difference  in  the  rule  with  reference  to  the  delivery  of  a  deed 
and  a  delivery  of  a  sealed  instrument  securing  the  payment  of 
money,  and  also  on  the  difference  between  a  bond  and  a  nego- 
tiable bill  of  exchange  or  promissory  note.  In  the  case  of  Bank 
v.  Luckow,  37  Minn.  542,  35  N.  "W.  Rep.  434,  the  delivery  was 
to  the  agent  of  the  payee ;  and  in  the  case  of  Perry  v.  Patter- 
son, 5  Humph,  133,  the  delivery  was  to  the  attorney  of  the 
payee.  None  of  the  cases  cited  by  counsel  for  plaintiff  in  error 
are  directly  in  point.  The  doctrine  contended  for,  even  as  ap- 
plied to  bonds,  is  expressly  denied,  we  think,  by  the  weight  of 
authority.  See  Dait  v.  U.  S.,  16  Wall.  1;  State  v.  Potter,  63 
Mo.  212;  State  v.  Peck,  53  Me.  284.  The  precise  point  pre- 
sented in  this  case  is  very  fully  considered  by  the  supreme  court 
of  Indiana  in  the  case  of  Deardorff  v.  Foresman,  24  Ind.  481, 
where  it  is  held:  "If  a  surety  signs  and  delivers  to  his  principal 
an  instrument  perfect  upon  its  face,  with  a  condition  that  it  is 
not  to  be  delivered  to  the  obligee,  payee,  or  grantee  until  some 
persons,  who  are  agreed  on,  shall  also  execute  the  same,  and  the 
principal  delivers  the  instrument  without  regard  to  the  condi- 
tion, and  the  obligee,  payee  or  grantee  has  no  knowledge  of  the 
condition,  the  delivery  will  bind  the  surety."  To  the  same  ef- 
fect, also,  are  the  cases  of  Gage  v.  Sharp,  24  Iowa  15 ;  Bonner 
v.  Nelson,  57  Ga.  433;  Fowler  v.  Allen  (S.  C.),  10  S.  E.  Eep. 
947.  Where  a  negotiable  promissory  note,  perfect  in  form, 
executed,  as  in  this  case,  by  a  number  of  persons,  is  intrusted 
to  one  of  the  makers  by  all,  we  think  there  is  a  presumption 
that  the  party  so  holding  the  note  has  authority  to  deliver  it 
to  the  payee.  When  a  note  so  executed  is  presented  by  the 
principal  to  the  payee  without  any  notice  to  the  payee  of  any 
understanding  between  the  makers,  affecting  the  right  of  the 
principal  to  deliver  to  the  payee,  we  think  he  is  justified  in 
assuming  that  the  parties  who  so  signed  the  note  intended  to 
be  bound  thereby,  and  that  he  may  receive  the  note,  and  deliver 
to  the  principal  the  consideration  therefor,  without  first  making 
inquiries  of  the  other  parties  to  the  instrument  for  the  purpose 
of  learning  whether  there  are  any  secret  agreements  of  under- 


120  EXECUTION   OF   CONTRACT. 

standings  affecting  the  instrument.     We  see  no  error  in  the 
ruling  of  the  court  below,  and  the  judgment  will  be  affirmed. 
All  the  justices  concurring. 


TRUSTEES  OF  SCHOOLS  v.  SCHEICK.     1886. 
119  III.  579;  8  N.  E.  Rep.  189;  59  Am.  Rep.  830. 

Appeal  from  appellate  court,  Second  district. 

CRAIG,  J.  This  was  an  action  of  debt  brought  by  the  board 
of  school  trustees  against  the  appellees  upon  the  bond  of  Phillip 
Reitz,  a  defaulting  school  treasurer.  In  the  circuit  court  the 
plaintiffs  recovered  a  judgment,,  but  on  appeal  the  appellate 
court  reversed  the  judgment,  and  decided  that  no  action  could 
be  maintained  on  the  bond  agaiast  the  trustees,  and  under  this 
ruling  no  remanding  order  was  entered.  The  bond  was  never 
executed  by  Phillip  Eeitz,  the  principal,  although  his  name  was 
inserted  in  the  condition  and  obligatory  part  of  the  instrument. 
It  was  properly  executed  by  appellees  as  sureties,  and  was  ac- 
cepted and  approved  by  the  board  of  school  trustees. 

Much  reliance  seems  to  be  placed,  in  the  argument,  upon  the 
finding  of  facts  as  incorporated  in  the  judgment  of  the  appellate 
court;  it  being  claimed  that  the  court  found  thatfappellees 
signed  the  bond  upon  the  condition  that  it  should  not  be  deliv- 
ered until  it  had  been  executed  by  the  principal.  AVe  do  not  so 
understand  the  finding.  The  circuit  court  has  found  the  facts, 
and  recited"  in  the  record  what  that  finding  was,  and  this  seems 
to  have  been  adopted  and  sanctioned  by  the  appellate  court. 
Upon  an  examination  of  the  finding  of  the  circuit  court  it  will 
be  seen  that  the  court  found  from  the  evidence  that  Reitz  prom- 
ised the  sureties  that  he  would  sign  the  bond  before  it  was  de- 
livered. This,  however,  does  not  constitute  the  execution  of  a 
H5ond  upon  condition  that  it  should  not  be  delivered  unless  exe* 
cuted  by  the  principal.  Indeed,  the  sureties  seemed  to  rely  upon 
the  promise  of  Reitz,  and  not  upon  a  conditional  delivery,  as  is 
apparent  from  the  finding  of  facts  by  the  circuit  court,  and 
from  the  decided  weight  of  evidence. 

It  is  also  said  that  the  liability  of  appellees  should  be  con- 
strued strictly.  The  general  rule  is  that  the  undertaking  of  a 


TRUSTEES  v.  SCHEICK.  121 

surety  is  to  be  construed  strictly.  He  is  only  bound  in  the  man- 
ner and  to  the  extent  set  forth  in  the  obligation  executed  by 
him.  Cooper  v.  People,  85  111.  417.  But,  adhering  to  this  rule 
to  its  ultimate  limit,  are  the  sureties  liable  on  the  obligation 
which  they  executed?  The  statute  required  this  bond  to  be 
executed  and  delivered  to  the  trustees,  for  the  purpose  of  keep- 
ing secure  the  public  funds,  and  for  the  purpose  of  guarding 
against  a  public  loss.  In  view  of  this  fact,  while  we  regard  it 
proper  to  adhere  to  the  rule  of  law  indicated  above,  still  a  surety 
who  has  incurred  an  obligation  of  this  character  should  not  be 
allowed  to  escape  liability  upon  a  mere  technical  defect  in  the 
obligation  he  may  have  executed,  which  does  not  go  to  the  sub- 
stance of  his  undertaking.  Keeping  this  principle  in  view,  we 
will  examine  the  principal  objections  urged  against  the  validity 
of  the  bond  upon  which  the  action  is  predicated. 

It  is  claimed  that  where  the  name  of  an  intended  co-obligor 
appears  upon  the  face  of  a  bond,  who  has  not  executed  it,  the 
instrument  is  imperfect  and  not  binding.  The  decisions  of  the 
courts  of  the  different  states  are  not  harmonious  in  regard  to 
the  binding  effect  of  a  bond  upon  the  rights  of  sureties,  where 
the  bond  has  not  been  executed  by  the  principal.  In  Bean  v. 
Parker,  17  Mass.  603,  where  an  action  was  brought  against  the 
sureties  on  a  bail-bond  which  had  not  been  executed  by  the 
principal,  the  court  held  that  no  action  could  be  maintained. 
It  is  there  said:  "We  think  it  essential  to  a  bail-bond  that  the 
party  arrested  should  be  a  principal;  it  is  recited  that  he  is; 
and  the  instrument  is  incomplete  and  void  without  his  signa- 
ture." In  a  later  case  (Russell  v.  Annable,  109  Mass.  72),  where 
the  principals  on  a  bond  constituted  a  firm,  and  the  firm  name 
was  signed  by  one  of  the  partners,  the  court  held  that  the  surety 
was  not  bound,  unless  it  appeared  that  the  partner  who  signed 
the  firm  name  had  authority  from  his  partner  to  do  so.  In 
Wood  v.  Washburn,  2  Pick.  24,  an  administrator's  bond  not 
executed  by  the  administrator  was  held  not  to  be  binding  on 
the  surety.  In  Ferry  v.  Burchard,  21  Conn.  602,  a  similar  ques- 
tion arose,  and  the  court  held  that  a  contract  of  a  surety  was 
of  such  a  nature  that  there  could  be  no  obligation  on  his  part 
unless  the  principal  was  also  bound.  In  Bunn  v.  Jestmore,  70 
Mo.  228,  a  late  case,  and  one,  too,  quite  similar  to  the  one  before 
us,  the  sureties  on  a  constable's  bond  were  held  not  liable  for  a 


122  EXECUTION   OF   CONTRACT. 

default  of  the  constable  upon  the  sole  ground  that  the  bond 
had  not  been  executed  by  the  principal.  There  are  other  cases 
holding  a  like  view,  and  there  are  others  which  hold  that  the 
sureties  may  be  held  liable  although  the  principal  did  not  exe- 
cute the  instrument.  State  v.  Bowman,  10  Ohio  445,  was  an 
action  on  a  treasurer's  bond.  The  principal's  name  was  in  the 
body  of  the  bond,  but  he  did  not  sign  the  instrument.  The 
sureties  defended  on  the  ground  that  the  principal  had  not 
signed  it,  but  the  court  held  that  they  were  bound.  Lowe  v. 
Stocker,  68  Pa.  St.  226,  was  an  a,ction  against  sureties  on  a  bond 
of  indemnity.  The  principal's  name  had  been  signed  without 
authority.  On  the  decision  of  the  case  it  was  said:  "Had  the 
bond  not  been  executed  at  all  by  the  principal,  though  his  name 
was  mentioned  as  one  of  the  obligors  in  the  body  of  the  instru- 
ment, it  is  clear  that  the  surety  could  not  avail  himself  of  this 
fact  as  a  defense."  Herrick  v.  Johnson,  11  Mete.  34;  Keyser 
v.  Keen,  17  Pa.  St.  330;  Haskings  v.  Lombard,  16  Me.  142; 
Grim  v.  School  Com'rs,  51  Pa.  St.  219;  Williams  v.  Marshall, 
42  Barb.  524 ;  Miller  v.  Tunis,  10  IT.  C.  423,  announce  a  similar 
rule.  The  supreme  court  of  Michigan  does  not  seem  inclined  to 
adopt  the  rule  established  in  either  class  of  cases  cited  above, 
but  seems  disposed  to  adopt  a  medium  ground.  Johnston  v. 
Township  of  Kimball,  39  Mich.  187,  is  a  case  in  its  facts  quite 
similar  to  the  one  under  consideration.  There,  as  here,  the  suit 
was  against  the  sureties  on  the  official  bond  of  a  defaulting  treas- 
urer. The  bond  was  drawn,  setting  out  the  name  of  the  prin- 
cipal and  sureties,  but  it  was  never  executed  by  the  principal. 
In  the  decision  of  the  case  the  court  said :  ' '  Our  statutes  plainly 
contemplate  that  the  treasurer  shall  himself  be  a  party  to  his 
own  official  bond;  and,  while  we  are  not  prepared  to  hold  that 
a  bond  knowingly  and  intentionally  given  without  his  concur- 
rent liability  will  not  bind  the  obligors,  we  are  of  the  opinion 
that  where  he  purports  to  be  obligor,  and  does  not  sign  the 
bond,  there  must  be  positive  evidence  that  the  sureties  intended 
to  be  bound  without  requiring  his  signature,  before  they  can  be 
held  responsible."  See,  also,  Hall  v.  Parker,  39  Mich.  287, 
where  the  same  doctrine  is  announced. 

"We  have  given  the  authorities  bearing  on  the  question  due 
consideration,  and  we  are  not  inclined  to  adopt  the  view  held 
by  the  courts,  that  a  bond  signed  by  the  sureties  without  the 


TRUSTEES  v.  SCHEICK.  123 

signature  of  the  principal  may  not  be  binding  upon  those  who 
execute  it,  as  was  held  in  the  case  cited  from  Missouri  and  other 
like  cases.  If  the  sureties  saw  proper  to  bind  themselves  with- 
out the  principal  executing  the  bond  and  becoming  bound,  we 
think  they  might  do  so,  and  their  undertaking  is  one  that  may 
be  enforced  in  the  courts  by  an  appropriate  action.  The  fact 
that  the  principal  obligor  in  this  case  failed  to  sign  the  bond 
was  a  mere  technicality,  which  ought  not  to  affect  the  rights 
of  any  of  the  parties  concerned.  In  what  way  are  the  sureties 
injured  by  the  omission  of  the  principal  obligor  to  sign  the 
bond?  If  they  are  compelled  to  pay  the  trustees  any  sum  of 
money  on  account  of  the  default  of  the  treasurer,  they  can  re- 
cover the  amount  back  from  him  whether  he  signed  the  bond 
or  not.  So  far,  then,  as  they  are  concerned,  they  are  in  as  good 
a  position  as  if  Reitz,  the  treasurer,  had  properly  executed  the 
bond.  If  Reitz  is  insolvent,  a  judgment  in  favor  of  the  trus- 
tees against  him  could  be  of  no  benefit  to  the  sureties.  If,  on 
the  other  hand,  he  is  solvent,  the  sureties  can  collect  from  him 
whatever  sum  they  may  be  required  to  pay  in  consequence  of 
executing  the  bond.  If  the  bond  had  been  signed  by  the  sure- 
ties upon  condition  that  it  should  not  be  delivered  to  the  trus- 
tees until  executed  by  the  treasurer,  and  if  the  trustees  had 
received  notice  of  such  condition,  or  notice  of  such  facts  pointing 
to  such  a  condition,  as  might  put  a  prudent  person  on  inquiry 
before  the  bond  was  approved,  then  they  could  not  be  regarded 
as  innocent  holders  of  the  instrument,  and  entitled  to  maintain 
an  action  upon  it.  But  the  sureties,  as  appears,  did  not  sign  the 
bond  on  such  a  condition,  but  executed  the  instrument,  and 
relied  merely  upon  the  promise  of  the  treasurer  that  he  would, 
before  delivery  of  the  bond,  sign  it.  This  was  no  more  than  a 
secret  promise  made  by  Reitz,  the  treasurer,  to  those  who  signed 
as  sureties,  which  could  not  be  binding  upon  the  trustees.  They 
had  no  notice  of  the  arrangement  existing  between  the  treasurer 
and  the  sureties,  and  they  ought  not  to  be  affected  by  it. 

In  Smith  v.  Peoria  Co.,  59  111.  414,  where  an  action  was 
brought  upon  an  official  bond  against  one  of  the  sureties,  he  set 
up  as  a  defense  that  he  signed  the  bond  on  condition  that  it 
should  also  be  executed  by  one  Cox  as  co-surety  before  it  should 
be  delivered;  that  Cox  failed  to  execute  the  bond;  that,  in  vio- 
lation of  the  agreement,  the  bond  was  delivered  without  his 


124  EXECUTION   OF   CONTRACT. 

knowledge  or  consent.  On  demurrer  to  pleas  in  which  this  de- 
fense was  set  up  the  matters  alleged  were  held  not  to  consti- 
tute a  valid  defense  to  the  action  on  the  bond;  but  other  pleas, 
in  which  the  same  facts  were  set  up,  and  also  that  the  plaintiff 
had  notice,  were  held  to  constitute  a  valid  defense  to  the  action. 
Under  the  ruling  in  the  case  cited,  if  the  bond  in  this  case  was 
signed  by  appellees  upon  condition  that  it  was  not  to  be  deliv- 
ered until  executed  by  the  principal,  and  the  trustees,  at  the 
time  they  accepted  and  approved  the  bond,  had  notice,  no 
action  could  be  maintained  on  the  bond;  but,  as  said  before,  no 
such  defense  was  made  out. 

The  judgment  of  the  appellate  court  will  be  reversed,  and 
the  judgment  of  the  circuit  court  will  be  affirmed;  the  cause 
remanded  to  the  circuit  court  for  further  proceedings  in  con- 
formity to  this  opinion. 

SCHOFIELD,  J.,  dissenting. 


HELMS  v.  WAYNE   AGRICULTURAL   COMPANY.    1881. 
73  Ind.  325;  38  Am.  Rep.  147. 

Action  on  promissory  notes.  The  opinion  states  the  case. 
The  plaintiff  had  judgment  below. 

WOODS,  J.  Suit  by  the  appellee,  against  the  appellants  and 
Isaac  N.  Poe,  begun  in  Hamilton  county  and  taken  by  change  of 
venue  to  Madison  county.  The  appellants  denied  the  execution 
of  the  note,  and  filed  other  special  pleas,  the  nature  of  which 
will  become  apparent  as  we  proceed.  Error  is  assigned  only 
upon  the  overruling  of  the  motion  for  a  new  trial,  and  the  coun- 
sel for  the  appellants  insists  only  upon  errors  claimed  to  ' '  Arise 
out  of  the  instructions  given  and  refused. ' ' 

The  following  are  the  instructions  complained  of: 

"1st.  This  action  is  brought  by  the  plaintiff  on  two  joint 
promissory  notes,  claimed  to  have  been  issued  jointly  by  all  the 
defendants  to  the  plaintiff.  The  defendant  Poe  makes  no  de- 
fense. The  defendant  Helms  claims  that  he  never  executed 
the  notes  in  suit,  that  is,  he  never  signed  them  himself,  nor  author- 
ized any  one  to  sign  them  for  him,  'and  that  he  never  affirmed 


HELMS  V.  WAYNE  AGL.   CO.  125 

or  ratified  the  signature  after  it  was  so  placed  to  said  notes,  in 
any  manner  whatever.  The  other  defendant,  Cardwell,  claims 
that  his  co-defendant  Helms'  name  or  signature  was  feloniously 
placed  to  said  notes,  by  some  person  not  known  to  them,  that 
is,  the  name  of  said  Helms  was  forged  to  said  notes,  and  that 
as  the  notes  were  therefore  void  as  to  Helms,  he,  Cardwell,  was 
also  released  by  said  forgery,  and  the  plaintiff  ought  not  to 
recover  against  him,  as  the  name  of  Helms  was  on  when  he 
signed.  The  said  defendants  also  filed  a  joint  answer,  setting  vx 
up  that  the  plaintiff  procured  both  of  said  defendants  to  ex- 
ecute the  notes  through  fraud ;  that  the  notes  were  presented  in 
blank,  and  so  signed,  with  the  agreement  that  they  be  filled 
up  for  certain  sums,  when  the  plaintiff,  after  the  signatures 
were  obtained,  filled  the  blanks  with  different  and  greater  sums 
than  were  agreed  upon,  and  put  a  false  date  to  said  notes,  mak- 
ing them  mature  sooner  than  by  the  agreement  they  were  to  fall 
due.  Now,  if  these  or  any  one  of  the  material  facts  in  this 
joint  answer  be  proven  true,  by  a  preponderance  of  the  evi- 
dence, you  should  find  for  the  said  defendants;  otherwise  you 
should  find  for  the  plaintiff,  unless  you  further  find  that  Helms ' 
name  to  fhe  notes  was  forged,  and  that  he  never  executed  said 
notes,  then  he  is  not  bound,  and  you  should  find  for  him,  and  for 
the  plaintiff  as  against  the  other  defendants,  if  she  has  proven, 
by  a  preponderance  of  all  the  testimony,  that  the  notes  were 
executed  by  the  other  defendants  as  alleged  in  her  complaint. 

"2d.  The  notes  in  suit  being  joint-notes  executed  by  several 
parties,  one  of  the  names  thereon  being  forged,  they  would  be 
void  as  to  the  person  whose  name  was  forged,  but  valid  as  to 
the  other  makers,  unless  at  the  time  she  accepted  said  notes  the 
plaintiff  had  knowledge  of  the  forgery,  or  in  some  way  partici- 
pated in  the  fraud  of  wrongfully  obtaining  the  said  signature ; 
but  if  you  find  that  the  plaintiff  received  and  accepted  said  notes 
in  good  faith  and  without  any  knowledge  or  information  that 
any  of  the  signatures  were  not  genuine  or  false,  being  innocent 
of  any  wrong,  the  law  protects,  and  you  should  find  for  the 
plaintiff  against  those  who  did  sign  the  notes. 

"3d.  Where  several  persons  execute  a  joint-note,  and  it  is 
delivered  to  and  received  by  the  payee  in  good  faith,  the  parties 
who  signed  are  not  discharged  because  the  name  of  one  is  forged 
to  such  note,  and  it  makes  no  difference  whether  the  forged 


126  EXECUTION   OF    CONTRACT. 

name  stands  first  or  last  on  such  note,  for  the  law  implies  an 
assertion  on  the  part  of  each  who  signs,  that  all  the  names  pre- 
ceding his  are  genuine,  for  it  is  not  to  be  presumed  that  a  man 
would  affix  his  name  to  a  note  when  the  prior  names  were  forged ; 
and  if  one  of  two  innocent  persons  has  to  lose  by  the  wrong  of 
a  third,  the  law  places  the  loss  on  the  party  who  had  the  oppor- 
tunity to  avoid  the  wrong  and  did  not  do  it,  as  every  one  ought 
to  know  when  he  signs  a  note  with  other  signatures  thereon, 
that  all  are  genuine,  and  failing  to  do  so,  is  guilty  of  neglect, 
and  must  bear  the  consequences;  and  if  you  find  from  the  evi- 
dence in  this  case,  that  such  were  the  facts  as  to  said  defendant 
Cardwell,  he  is  liable,  and  you  should  find  against  him  on  said 
issue. 

"4th.  "Where  sureties  sign  a  note,  with  an  agreement  that 
other  persons  shall  sign  the  same  before  it  is  delivered,  and 
the  note  is  delivered  without  being  signed  by  such  other  persons, 
it  will  still  be  binding  on  such  as  sign  it,  unless  the  payee  of  the 
note  is  a  party  to  the  agreement.  Hence  if  you  should  find 
that  the  notes  in  suit  were  signed  by  the  defendants  Helms  and 
Cardwell,  under  an  agreement  with  the  principal  that  other 
persons  should  sign  the  said  note  before  it  should  be  delivered, 
and  that  it  was  delivered  without  such  other  signatures  to  the 
principal  in  the  notes,  and  the  plaintiff  knew  nothing  of  such 
agreement,  and  was  no  party  thereto,  then  it  could  not  bind  the 
plaintiff,  and  your  verdict  should  be  for  the  plaintiff." 

The  appellants  also  excepted  to  the  refusal  of  the  court  to 
give  the  following  instructions: 

"5th.  If  you  believe  from  the  evidence  that  Isaac  N.  Poe 
signed  the  defendant  Helms'  name  to  the  notes  sued  on,  with- 
out the  consent  of  Helms,  then  you  should  find  for  both  the 
defendants,  unless  the  defendant  Cardwell  signed  the  notes 
knowing  that  Helms'  name  was  forged. 

"7th.  And  if  these  notes  were  signed  by  Poe  in  the  name 
of  Helms,  without  the  proper  authority  from  Helms,  then  you 
should  find  for  both  Helms  and  Cardwell,  if  Cardwell  signed 
in  the  honest  belief  that  the  signature  of  Helms  was  genuine. 

"8th.  And  if  the  notes  in  suit  were  sent  by  the  plaintiff, 
either  filled  up  Or  not  filled  up,  as  to  the  amount  of  the  same, 
to  the  defendant  Poe  with  a  request  by  the  plaintiff  for  Poe 
to  get  security  on  them,  then,  for  the  purpose  of  obtaining  such 


HELMS  v.  WAYNE  AGL.   CO.  127 

security,  the  said  Poe  was  the  agent  of  the  plaintiff,  and  the 
plaintiff  can  reap  no  benefit  by  the  fraudulent  act  or  forgery 
of  said  Poe.'* 

Verdict  and  judgment  against  both  appellants. 

The  court  committed  no  error  in  reference  to  these  instruc- 
tions, either  in  giving  or  in  refusing. 

The  doctrine  of  the  instructions  given  is  expressed  in  the  fol- 
lowing proposition,  namely:  When  the  name  of  one  of  two  or 
more  obligors  in  a  bond,  note,  or  other  writing  obligatory,  has 
been  forged,  the  supposed  co-obligor,  though  a  surety  only,  and 
though  he  signed  in  the  belief  that  the  forged  name  was  genuine, 
is  nevertheless  bound,  if  the  payee  or  obligee  accepted  the  instru- 
ment without  notice  of  the  forgery.  This  doctrine  is  supported 
either  directly  or  in  principle  by  the  following  authorities: 
Veazie  v.  Willis,  6  Gray,  90;  York  County  M.  F.  Ins.  Co.  v. 
Brooks,  51  Me.  596;  Franklin  Bank  v.  Stevens,  39  id.  532; 
iStoner  v.  Millikin,  85  III.  2%  Selser  v.  Brock,  3  Ohio  St.  302; 
tBigelow  v.  Comegys,  5  id.  256;  Hagar  v.  Mounts,  3  Blackf.  57; 
Harter  v.  Moore,  5  id.  367;  Carr  v.  Moore,  2  Ind.  602;  State  v. 
Van  Pelt,  1  id.  304;  Deardorff  v.  Foresman,  24  id.  481;  State  v. 
Pepper,  31  id.  76;  Craig  v.  Hobbs,  44  id.  363;  Brandt  Surety- 
ship, §  358. 

The  appellants  insist  on  a  contrary  doctrine,  relying  mainly 
for  authoritative  support  upon  the  case  of  Seeley  v.  People,  27 
111.  173.  That  case  goes  fully  to  the  extent  claimed  for  it,  but 
it  was  confessedly  decided  without  citation  or  knowledge  of  any 
supporting  authority,  and  has  recently  been  expressly  overruled 
by  the  case  of  Stoner  v.  Milliken,  supra,  which,  besides  a  citation 
of  adjudicated  cases,  is  supported  by  reasons  much  more  satis- 
factory and  conclusive. 

Counsel  have  referred  us  to  the  remarks  of  Judge  EEDFIELD, 
in  3  Am.  L.  Reg.  (N.  S.),  p.  404,  in  a  note  to  Insurance  Com- 
pany v.  Brooks,  supra,  wherein  he  says:  "We  confess  to  a 
strong  inclination,  in  questions  affecting  specialties  and  simple 
contracts  not  negotiable,  to  favor  the  English  rule.  It  seems 
to  us  that  too  many  of  the  American  cases  in  striving  to  require 
good  faith  and  diligence  of  the  obligor  or  promisor,  having 
quite  too  much  overlooked  the  corresponding  obligations  on  the 
part  of  the  obligee.  We  can  see  no  good  reason  why  the  obligee, 
who  in  accepting  the  bond,  trusts  to  the  representations  of  the 


128  EXECUTION   OF    CONTRACT. 

principal  obligor  as  to  the  execution  of  the  instrument  by  the 
others,  who  are  known  to  stand  as  co-sureties,  should  be  any  more 
entitled  to  screen  himself  from  the  consequences  of  those  repre- 
sentations proving  false,  than  should  the  obligor.  The  true  rule 
in  such  case  seems  to  be  that  each  party  may  stand  upon  the 
facts  of  the  case,  unless  he  has  been  guilty  of  fraudulent  mis- 
conduct. This  is  certainly  the  present  English  rule  upon  the 
subject,  and  the  one  which  we  believe  will  ultimately  prevail  in 
this  country." 

The  English  cases  cited  can  hardly  be  said  to  go  so  far.  But 
suppose  it  be  granted  that  each  party  may  stand  on  the  facts 
of  the  case,  what  meaning  shall  we  attach  to  the  phrase,  and 
what  consequences  must  follow?  More  can  hardly  be  intended 
than  that  in  the  absence  of  fraudulent  conduct  or  intent  on  his 
part,  the  surety  who  signs  after  a  forged  name  shall  be  deemed 
to  have  been  no  more  and  no  less  careless  than  the  obligee  who 
accepts  the  paper  with  the  forged  name  thereon,  and  neither 
shall  be  deemed  to  have  owed  any  duty  to  the  other  to  detect 
and  expose  the  false  signature.  In  other  words,  they  stand,  on 
the  facts  of  the  case,  alike  deceived  and  alike  blameless  or  in 
fault.  What  are  the  consequences  as  to  their  rights  under  the 
contract?  Shall  the  surety  be  discharged,  and  the  obligee  get 
nothing?  It  will  not  do  to  say  that  the  consideration  as  to 
him,  as  well  as  the  principal  debtor,  moved  from  the  creditor, 
and  is  in  no  degree  diminished.  But  if  we  confound  considera- 
tion with  motive  or  inducement,  it  still  may  not  be  said  to  have 
wholly  failed  because  in  the  language  of  Judge  REDFIELD  in  note 
to  Seely  v.  People,  2  Am.  L.  Reg.  (N.  S.)  346,  "he  is  supposed 
to  have  assumed  the  obligation,  in  part  at  least,  upon  the  credit 
of  the  party  for  whom  he  became  surety,"  and  cannot  have 
relied  on  his  supposed  co-obligor  for  more  than  a  contributive 
share  of  the  liability. 

The  plain  solution  of  the  question,  in  accordance  with  legal 
principles  and  natural  justice,  is  that  the  parties  will  be  left 
in  the  predicament  into  which  they  have  voluntarily  come,  and 
neither  being  able  to  claim  that  he  was  misled  or  deceived  by 
the  other,  their  contract  will  be  enforced  as  they  made  it.  There 
is  no  equity  in  the  case  which  can  interrupt  the  course  of  the  law. 

(Omitting  minor  questions.) 


STONER   v.   MILLIKIN.  129 

We  find  no  error  in  the  record.     The  judgment  of  the  Circuit 
Court  is  therefore  affirmed,  with  costs. 

/  Judgment  affirmed. 

t2- 


5.     When  name  of  supposed  co-surety  is  a  forgery  surety  is 
not  released  if  creditor  acts  in  good  faith. 

STONER  v.    MILLIKIN.     1877. 
85  III.  218. 

Mr.  Chief  Justice  SHELDON  delivered  the  opinion  of  the  Court : 

At  the  February  term,  1874,  of  the  county  court  of  Maeon 
county,  a  judgment  was  entered  by  confession,  in  favor  of  Mil- 
likin  &  Co.,  against  Thomas  Lee,  John  Lee,  and  Andrew  J. 
Stoner,  for  $453.33,  upon  a  promissory  note  with  a  warrant  of 
attorney  attached,  purporting  to  be  executed  by  the  three  latter, 
dated  the  24th  day  of  June,  1873,  payable  ninety  days  after  date 
to  H.  Crea  and  assigned  by  him  without  recourse. 

An  execution,  issued  upon  the  judgment,  was  levied  upon  per- 
sonal property  of  John  Lee,  sufficient  in  value  to  satisfy  it. 
Afterward,  by  direction  of  Millikin  &  Co.,  the  sheriff  released 
the  property  of  John  Lee  from  the  levy,  and  levied  the  execu- 
tion upon  certain  real  estate  of  Stoner,  and  the  bill  in  this  case 
was  filed  by  Stoner  to  enjoin  the  sale  of  his  property  under  the 
execution. 

The  court  below,  upon  final  hearing  on  proof,  dismissed  the 
bill,  and  the  complainant  appealed. 

The  chief  ground  relied  upon  in  support  of  the  bill  is,  that 
the  signature  of  the  name  of  John  Lee  to  the  note  is  a  forgery. 
The  note  is  a  joint  and  several  one,  the  signature  of  Stoner 
being  last  upon  the  note.  He  testifies  that  Thomas  Lee  applied 
to  him  to  sign  the  note  as  his  security ;  that  he  refused  to  do  so 
unless  Lee  would  first  get  his  brother,  John  Lee,  to  sign  the 
note;  that  Lee  went  away  saying  he  would  go  and  get  John 
to  sign  it;  that  the  next  day  he  came  back,  saying  that  he  had 
got  John  to  sign  it,  and  presented  the  note  with  the  signature  of 
John  Lee  appearing  to  it,  and  witness  then  signed  it,  supposing 
the  signature  of  John  Lee  to  be  genuine,  knowing  him  to  be  re- 

9 


130  EXECUTION   OF   CONTRACT. 

sponsible,  and  had  he  not  supposed  the  note  to  have  been  signed 
by  John  Lee,  he  would  not  have  executed  it.  Thomas  Lee  had 
made  the  arrangement  beforehand  with  Millikin  &  Co.,  to  lend 
him  the  money.  H.  Crea,  the  payee  of  the  note,  was  but  nomi- 
nally such,  Millikin  &  Co.  being  the  real  payees,  and  on  present- 
ment of  the  note,  with  Crea's  indorsement  on  it  by  Thomas  Lee 
to  Millikin  &  Co.  who  were  bankers,  they  discounted  the  note, 
paying  the  proceeds  to  Thomas  Lee. 

The  bill  alleges,  the  way  John  Lee's  property  came  to  be 
released  was,  that  he  made  an  affidavit  that  he  never  signed 
the  note  and  that  his  signature  to  the  same  was  a  forgery,  and 
that  upon  the  making  of  such  affidavit  Millikin  &  Co.  caused 
his  property  to  be  released  from  the  levy.  Although  it  is  this 
forgery  which  is  mainly  relied  on  for  the  discharge  of  Stoner, 
it  is  yet  objected,  as  against  the  release  of  John  Lee's  property 
and  the  levy  on  Stoner 's,  that  there  is  no  proof  of  the  forgery, 
more  than  this  affidavit.  Upon  an  examination  of  the  bill  we 
take  that,  as  alleging  the  fact  of  the  forgery ;  and  the  answer  of 
Millikin  &  Co.  and  the  sheriff  admits  the  same.  By  the  plead- 
ings, the  forgery  must  be  considered  an  admitted  fact  in  the 
case.  The  confession  of  judgment,  then,  against  John  Lee,  was 
unauthorized,  and  a  nullity  and  his  property  was  rightly  re- 
leased from  the  levy  under  the  execution. 

Why  should  this  forgery  operate  in  discharge  of  Stoner  and 
entitle  him  to  have  his  property  exempted  from  sale  on  the 
execution  ? 

It  may  have  been  a  wrong  toward  him,  and  have  caused  him 
to  incur  a  greater  extent  of  liability  than  he  expected;  and  the 
supposed  obtaining  of  the  execution  of  the  note  by  John  Lee 
may  have  been  the  sole  condition  upon  which  he  signed  his  name 
to  the  note.  Yet,  on  satisfactory  evidence  to  himself,  in  that 
respect,  he  did  place  his  name  unconditionally  to  the  note  as  a 
maker  thereof,  and  left  it  with  Thomas  Lee  to  deliver  to  Millikin 
&  Co.  knowing  that  on  the  faith  of  his,  Stoner 's,  promise  to  repay 
it,  they  would  part  with  their  money  to  Thomas  Lee.  There  is 
no  just  reason  why  this  promise  to  Millikin  &  Co.  should  not  be 
kept. 

Whatever  of  wrong  there  was  to  Stoner  was  perpetrated  by 
his  co-maker  Thomas  Lee.  Millikin  &  Co.  were  wholly  innocent 
in  the  matter;  they  had  no  notice  of  anything  which  had  been 


STONER   v.   MILLIKIN.  131 

transpiring  among  the  makers  of  the  note,  as  between  them- 
selves. Nor  was  it  incumbent  upon  Millikin  &  Co.  to  exercise 
care  over  the  interest  of  the  surety  in  the  note,  look  to  the  in- . 
ducement  which  led  him  to  become  such,  and  see  that  it  should.,.,^.,. 
not  fail.  They  had  but  to  watch  over  their  own  interest,  and  see. 
That  the  seGurity^offered  was  a  sufficient  protection  for  them. 
For  the  lack  of  the  vigilance  they  failed  to  exercise  in  this 
respect,  they  suffer  the  full  consequence  in  the  loss  of  the 
security  of  the  name  of  John  Lee.  Whatever  of  fraud  and 
deception  the  co-makers  of  the  note  practiced  toward  one  another 
was  their  own  sole  concern,  and  the  consequence,  so  far  as  may 
affect  them  in  their  relation  to  each  other,  should  be  borne  by 
themselves  alone.  There  is  no  justice  in  requiring  Millikin  &  Co. 
to  assume  the  risk  of  such  conduct,  and  no  sound  principle 
upon  which  they  should  be  made  to  suffer  loss  because  of  it,  not 
being  privy  thereto. 

York  County  M.  F.  Insurance  Co.  v.  Brooks,  51  Me.  506,  and 
Selser  v.  Brock,  3  Ohio  St.  302,  are  direct  authorities  to  the 
point  that  such  a  forgery  of  the  name  of  a  prior  surety  will  not 
discharge  a  subsequent  surety.  See  Young  et  al.  v.  Ward,  21 
111.  223. 

We  regard  the  language  of  Lord  Holt,  in  Hern  v.  Nichols,  1 
Salk.  289,  as  applicable,  that  "Seeing  that  somebody  must  be  a 
loser  by  this  deceit  it  is  more  reason  that  he  that  employs  and 
puts  trust  and  confidence  in  the  deceiver  should  be  a  loser,  than 
a  stranger." 

The  case  of  Seely  v.  The  People,  27  111.  173,  is  departed  from 
so  far  as  it  conflicts  with  the  principle  of  the  present  decision. 

We  are  satisfied  with  the  decree,  and  it  is  affirmed. 

Decree  affirmed. 


132  EXECUTION   OF   CONTRACT.         / 

c.     Where  *A*«JHiSS88^  is  a  married  woman,  an  infant  or  an 
Z>     insane  person. the  surety  is  nevertheless  bound,  if  creditor 
acts  in  good  faitfa 

GOSMAN  v.  CRUGER.     1877. 
69  N.  Y.  87;  25  Am.  Rep.  141. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court  in  the  second  judicial  department  affirming  so  much  of 
the  judgment  herein  as  dismissed  the  complaint,  as  to  defendant 
Eliza  L.  C.  Cruger.  (Reported  below,  7  Hun,  60). 

This  action  was  brought  upon  a  bond  executed  by  defendants 
as  sureties  for  one  Edward  R.  Olcott,  since  deceased,  conditioned 
for  the  faithful  performance  of  his  duties  as  guardian  of  plain- 
tiffs. 

The  complaint  alleged  that  said  defendant  Eliza  was,  at  the 
time  of  the  execution  of  the  bond,  a  married  woman,  having  a 
separate  estate,  and  it  was  'asked  that  the  amount  of  the  recovery 
be  adjudged  a  charge  upon  her  separate  estate. 

Attached  to  the  bond  was  an  affidavit  signed  by  the  sureties,  to 
the  effect  that  they  were  each  worth  the  sum  of  $10,000,  over 
and  above  all  debts  and  liabilities.  The  bond  was  presented  and 
filed  with  the  petition  for  the  appointment  of  said  guardian, 
and  upon  them  he  was  duly  appointed,  and  received,  as  such, 
in  pursuance  of  an  order  of  the  court,  moneys  belonging  to  plain- 
tiffs which  he  converted  to  his  own  use. 

The  court  directed  judgment  against  defendant,  John  P. 
Cruger,  but  directed  a  dismissal  of  the  complaint  as  to  defend- 
ant, Eliza.  Judgment  was  entered  accordingly. 

FOLGER,  J.  A  married  woman  is  bound  by  her  contracts 
made  in  her  separate  business,  or  relating  to  her  separate  estate, 
as  provided  in  the  married  woman's  acts  of  1848,  1849,  1860 
and  1862;  and  they  may  be  enforced  against  her  at  law  or  in 
equity. 

If  her  contracts  are  not  thus  made  or  do  not  thus  relate,  they 
are  void  at  law,  and  may  not  be  enforced  in  equity  against  her 
separate  estate,  unless  the  intention  of  charging  that  estate  is 
expressed  in  the  contract,  or  implied  from  its  terms;  (Yale  v. 
Dederer,  22  N.  T.  450). 


GOSMAN   v.    CRUGER.  133 

The  bond  sued  upon  in  this  action  is  not  a  contract  made  by 
Mrs.  Cruger  in  her  separate  business  nor  does  it  relate  to  her 
separate  estate,  nor  is  there  expressed  in  it  an  intention  of  charg- 
ing that  estate.  It  seems,  therefore,  that  the  plaintiffs  cannot 
recover  against  her. 

The  appellants  seek  to  go  outside  the  bond,  and  to  find  the 
requisite  expression  of  intention,  in  the  other  circumstances,  acts 
and  papers,  in  the  proceeding.  Authorities  are  cited  to  the 
effect  that  a  bond  given  in  pursuance  of  a  decree  is  to  be  con- 
strued with  the  decree  and  that  the  terms  of  the  latter  enter 
into  and  form  a  part  of  the  contract.  But  there  is  nothing  to  be 
found  in  the  proceedings  which  led  to  the  execution  of  this  bond, 
which  shows  a  purpose  on  the  part  of  the  court  to  compel  Mrs. 
Cruger  to  bind  her  separate  estate,  even  if  there  was  the  power 
to  compel  a  married  woman  so  to  execute  a  bond.  It  does  not 
appear,  indeed,  that  it  was  known  that  she  was  a  married  woman. 
The  reference  made  to  the  rules  of  the  Supreme  Court  (rule  65), 
of  chancery  (rule  148),  and  to  the  statute  which  authorized  those 
rules  (2  R.  S.,  175,  §46),  is  no  more  than  to  say  that  the  law 
required  two  sufficient  sureties.  If  one  of  the  sureties  had  been 
an  infant  he  would  not  because  of  the  rules  and  the  statute,  have 
been  held  to  have  made  a  valid  contract.  And  though  Mrs. 
Cruger  might  have  made  a  valid  contract  had  she  put  it  in  the 
requisite  form,  she  is  not  to  be  held  to  have  done  so  merely  for 
the  reason  that  the  law  was  not  complied  with  when  she  did 
otherwise.  Nor  does  the  fact  that  she  made  an  affidavit  that 
she  possessed  enough  estate  to  make  her  a  sufficient  surety,  incor- 
porate into  the  contract  of  suretyship  the  expression  of  an 
intention  to  bind  that  estate  if  it  was  separate.  That  it  was  a 
statement  in  writing  makes  it  no  more  efficient  than  if  by  parol 
(Maxon  v.  Scott,  55  N.  Y.  247),  so  far  as  the  expression  of  an 
intention  is  concerned.  It  might  be  demanded  in  writing,  to 
meet  the  Statute  of  Frauds.  But  it  was,  though  in  writing,  out- 
side of  the  written  contract  as  much  as  such  a  statement  in 
parol  aliunde,  would  be  outside  of  a  contract  valid  by  parol. 
Parties  may  struggle  against  the  rule,  but  it  is -the  rule,  that 
the  intention  to  charge  the  separate  estate  must  be  expressed  in 
the  contract,  or  implied  in  the  terms  of  it.  The  affidavit  is  no 
part  of  the  contract  or  of  its  terms.  It  is  but  a  statement  in 


134  EXECUTION    OF    CONTRACT. 

legal  form  that  the  person  named  in  the  contract  is  of  sufficient 
estate  to  be  a  proper  party  to  it. 

It  is  claimed  that  the  reason  of  the  rule  declared  in  Yale  v. 
Dederer,  does  not  apply  to  this  case,  and  that,  therefore,  the 
rule  ceases.  That  reason  is  said  to  be  this:  That  a  contract 
made  by  a  married  woman  is  void  at  law;  that  it  may  be 
enforced  in  equity  under  some  circumstances  but  not  when  it  is 
a  contract  of  suretyship,  for  there  is  no  equity  springing  out  of 
the  consideration.  It  is  then  claimed,  that  suretyship  for  a 
guardian  is  an  exception  to  this  rule,  as  equity  will  enforce 
against  persons,  sui  juris,  who  become  sureties  their  obligations, 
the  same  as  if  they  made  them  as  principals.  The  authorities 
in  this  State  cited  by  the  appellants,  do  not  sustain  the  proposi- 
tion. What  was  substantially  held  in  Wiser  v.  Blackly  (1  J. 
Ch.  K.,  607),  was  that  one  signing  a  bond  as  surety  was,  as 
well  as  one  signing  as  principal,  liable  to  a  suit  to  reform  the 
contract  so  as  to  conform  it  to  the  intention  of  the  parties,  and 
as  the  defendant's  answer  admitted  that  the  surety  intended  to 
bind  himself  for  the  guardian,  a  mistake  in  the  form  of  the  bond 
was  corrected  or  treated  as  so.  So  it  was  in  Prior  v.  Williams 
(2  Keyes,  530),  which  was  not  the  case  of  guardianship. 

The  case  from  Jones'  Reports  (Sikes  v.  Truitt,  4  Jones  Eq. 
(N.  C.)  360),  is  professedly  based  on  that  from  Iredell,  and 
with  some  distrust  of  the  correctness  of  the  precedent.  That 
from  Iredell  (Armistead  v.  Bozman,  1  Ired.  Eq.,  117)  is  to  the 
same  effect  as  Wiser  v.  Blackly  (supra) ;  that  the  instrument 
may  be  corrected  in  form  to  agree  with  the  intention  of  the 
surety  as  admitted  or  proven. 

It  is  then  claimed  that  Mrs.  Cruger,  by  not  making  known  to 
the  court  that  she  was  a  married  woman,  was  guilty  of  a  fraud 
on  it.  It  is  claimed  that,  either  as  a  mistake  or  as  a  fraud,  the 
court  will  take  hold  of  it,  and  enforce  the  bond  against  her.  It 
need  only  be  said  as  to  this,  that  the  intention  to  charge  the 
separate  estate  is  made  an  issue  by  the  pleadings  and  found 
against  the  plaintiffs;  and  that  fraud  is  not  found  nor  alleged. 

The  judgment  must  be  affirmed. 

All  concur.  Judgment  affirmed. 


WINN  v.  SANFORD.  rr"       135 


WINN  v.  SANFORD.    1687. 

148  Mass.  39;  14  N.  E.  Rep.  119;  1  L.  R.  A.  512;  1  Am.  St.  Rep. 

461. 

Contract  upon  the  following  bond,,  executed  by  Susan  B.  Winn, 
as  principal,  and  the  defendant,  Frederick  C.  Sanf  ord,  as  surety  : 
"Know  all  men  by  these  presents,  that  we,  Susan  B.  Winn,  wife 
of  John  Winn,  of  Nantucket,  as  principal,  and  Frederick  C. 
Sanford,  of  Nantucket,  as  surety,  are  holden  and  stand  firmly 
bound  unto  John  Winn,  of  Nantucket,  above  named,  in  the  sum 
of  three  hundred  dollars,  to  the  payment  of  which  to  the  said 
John  Winn,  or  his  executors,  administrators,  or  assigns,  we 
hereby  jointly  and  severally,  bind  ourselves,  our  heirs,  executors, 
and  administrators.  The  condition  of  this  obligation  is  such 
that,  whereas,  in  a  settlement  of  differences  between  said  John 
Winn  and  Susan  B.  Winn,  it  was  agreed  by  said  Susan  B.  Winn, 
and  on  her  behalf,  that  she  should  give  to  said  John  Winn  a  bond, 
with  surety,  'to  release  dower  whenever  requested,  and  make  no 
further  claim  on  said  John  Winn  for  any  support,  or  for  any 
cause  whatever.'  Now,  therefore,  if  said  Susan  B.  Winn  shall, 
whenever  requested,  sign  release  of  dower  in  any  real  estate  of 
said  John  Winn,  and  shall  make  no  further  claim  upon  him  for 
any  support,  or  for  any  cause  whatever,  then  this  obligation  shall 
be  void;  otherwise  it  shall  be  and  remain  in  full  force  and  vir- 
tue." The  court  ruled,  as  a  matter  of  law,  that  the  bond  could 
not  be  made  the  basis  of  any  legal  claim  against  the  defendant  ; 
that  Mrs.  Winn  not  being  liable  to  her  husband  under  it,  the 
defendant  was  not  liable.  The  plaintiff  alleged  exceptions. 

By  Court,  DEVENS,  J.  It  is  true,  as  a  general  proposition,  that 
the  liability  of  a  guarantor  or  of  a  surety  is  limited  by  that  of 
his  principal.  But  to  this  there  are  certain  exceptions.  Thus, 
where  the  principal  is  excused  from  liability  for  reasons  personal 
to  himself,  and  which  do  not  affect  the  debt  he  has  incurred  or 
the  promise  he  has  made,  the  surety  would  not  be  entitled  to  the 
benefit  of  this  excuse.  In  such  case,  he  is  in  a  certain  sense  an 
independent  promisor,  and  must  perform  his  promise. 

In  Maggs  v.  Ames,  4  Bing.  470,  the  defendant  had  guaranteed 
the  purchases  made  by  a  married  woman  incapable  of  making 
a  contract;  the  question  in  the  case  was  whether  this  guaranty 


136  EXECUTION    OF    CONTRACT. 

should  have  been  in  writing;  but  it  is  assumed  throughout,  by 
court  and  council,  that  if  it  had  been  in  writing  the  defendant 
would  have  been  liable,  although  there  could  have  been  no  lia- 
bility on  the  part  of  the  principal. 

In  a  similar  manner,  where  one  becomes  a  surety  for  the  per- 
formance of  a  promise  made  by  a  person  incompetent  to  contract, 
his  contract  is  not  purely  accessorial,  nor  is  his  liability  neces- 
sarily ascertained  by  determining  whether  the  principal  can  be 
made  liable.  Fraud,  deceit  in  inducing  the  principal  to  make 
his  promise,  or  illegality  thereof,  all  of  which  would  release  the 
principal,  would  release  the  surety,  as  these  affect  the  character 
of  the  debt;  but  incapacity  of  the  principal  party  promising 
to  make  a  legal  contract,  if  understood  by  the  parties,  is  the  very 
defense  on  the  part  of  the  principal  against  which  the  surety 
assures  the  promisee:  Yale  v.  Wheelock,  109  Mass.  502. 

The  bond  in  the  case  at  bar  is  several  as  well  as  joint.  It  ap- 
pears from  it  that  Mrs.  Winn  is  the  wife  of  the  obligee,  and  it 
recites  the  agreement  made  between  them.  This  agreement 
made  by  her  is  void,  so  far  as  the  case  now  discloses,  solely  be- 
cause of  her  incapacity  to  contract;  but  this  should  not  release 
the  defendant  from  his  engagement  that  she  should  perform 
the  promise  made  by  her.  The  defense  which  Mrs.  Winn  per- 
sonally has,  resulting  from  her  situation,  should  not  be  open  to 
him. 

Nor  do  we  perceive  that  any  distinction  can  be  made,  as  sug- 
gested by  the  defendant,  between  the  promise  of  a  married 
woman,  which  is  void,  and  that  of  a  minor,  which  is  voidable. 
In  either  case,  the  surety  assures  the  promisee  against  the  in- 
capacity of  the  principal  to  make  a  legal  contract,  whether  it 
be  more  or  less  complete. 

The  cases  in  which  it  has  been  held  that  the  coverture  of  the 
principal  promisor  at  the  time  of  making  her  promise  will  not 
discharge  the  surety,  when  such  coverture  was  known  to  him, 
are  numerous,  and  have  arisen  on  many  descriptions  of  contract : 
Smyley  v.  Head,  2  Kich.  Eq.  590 ;  45  Am.  Dec.  750 ;  Kimball  v. 
Newell,  7  Hill,  116 ;  Nabb  v.  Koontz,  17  Md.  283 ;  Jones  v.  Crosth- 
waite,  17  Iowa  393;  Weed  Sewing  Machine  Co.  v.  Maxwell,  63 
Mo.  486 ;  St.  Albans  Bank  v.  Dillon,  30  Vt.  122 ;  73  Am.  Dec. 
295;  Davis  v.  Statts,  43  Ind.  103;  13  Am.  Eep.  382;  Stillwell  v. 
Bertrand,  22  Ark.  375. 

Exceptions  sustained. 


KYGER  v.  SIPE.  137, 


KYGER  v.  SIPE.    1892. 
89  Va.  507;  16  8.  E.  Rep.  627. 

Appeal  from  circuit  court,  Rockingham  county. 

LEWIS,  P.  It  is  not  necessary  in  the  present  case  to  consider 
what  contracts  of  an  infant  are  voidable,  nor  what  is  a  sufficient 
disaffirmance  or  ratification,  of  such  contracts.  The  subject  was 
considered  in  Mustard  v.  "Wohlford,  15  Grat.  329,  and  we  need 
only  refer  to  what  was  there  said. 

The  principal  question  here  is  as  to  the  effect  upon  the  appel- 
lant's liability  of  the  disaffirmance  by  E.  J.  Carrickhoff,  who,  at 
the  date  of  the  transaction  in  question,  was  an  infant.  Her 
contention  is  that  that  disaffirmance  rendered  those  transactions, 
including  the  deed  of  trust,  void  ab  initio,  not  only  as  to  him,  but 
as  to  her,  as  his  surety.  In  support  of  this  view,  counsel  refer 
to  the  language  of  Judge  MONCURE  in  Mustard  v.  Wohlford,  where 
he  said  that  where  a  voidable  contract  of  an  infant  is  dis- 
affirmed by  him  ' '  it  is  made  void  ab  initio,  and  the  parties  revert 
to  the  same  situation  as  if  the  contract  had  not  been  made." 
But  this  was  not  said  in  a  case  in  which  an  infant  was  jointly 
bound  with  an  adult.  In  such  a  case  the  liability  of  the  latter 
is  not  affected  by  the  plea  of  infancy,  as  is  shown  by  the  case 
of  Wamsley  v.  Lindenberger,  2  Rand.  (Va.)  478,  and  a  multi- 
tude of  cases  which  might  be  cited  to  the  same  effect;  and  the 
same  rule  applies  where,  in  an  action  on  a  joint  contract,  cover- 
ture is  pleaded ;  in  either  case  the  defense  being  of  a  wholly  per- 
sonal character.  It  is  contended,  however,  that  it  is  otherwise 
in  the  case  of  a  surety,  and  the  general  rule  is  invoked  that 
where  there  is  no  principal  there  can  be  no  surety.  But  to  this 
rule  there  are  exceptions,  one  of  which  is  that,  if  the  principal 
is  not  liable  by  reason  of  a  purely  personal  defense  in  the  nature 
of  a  privilege  or  protection,  as  infancy  or  coverture,  then  the 
surety  is  not  released,  but  the  contract  subsists  as  against  him  in 
full  force.  In  such  a  case  the  disability  of  the  principal  may  be 
the  very  reason  why  the  surety  was  required,  and  consented  to 
become  bound.  Brandt,  Sur.  128 ;  Bank  v.  Dillon,  30  Vt.  122 ; 
Sewing  Mach.  Co.  v.  Maxwell,  63  Mo.  486 ;  Davis  v.  Statts,  43 
Ind.  103.  And  if  this  be  so  where  an  infant  is  the  only  principal, 
a  fortiori  is  it  so  where,  as  in  the  present  case,  there  are  two 


133  EXECUTION    OF    CONTRACT. 

principals,  one  of  whom  is  an  adult.  Nor  does  it  matter  that 
tho  bonds  and  deed  of  trust  in  the  present  case  were  signed  for 
the  infant  by  a  person  not  authorized  to  do  so,  for,  if  he  himself 
had  signed  them,  his  right  to  disaffirm  the  contract  after  attain- 
ing full  age  would  have  been  just  the  same.  It  is  conceded 
that  he  was  a  joint  purchaser  of  the  sawmill  and  engine,  and 
that  he  promised  to  pay  therefor  independently  of  the  bonds; 
nor  does  the  deed  of  trust  in  terms  mention  the  bonds,  and 
the  suit  is  not  upon  the  bonds,  but  to  enforce  the  deed  of  trust. 
The  case  of  Baker  v.  Kenntt,  54  Mo.  82,  is  relied  on,  but  does 
not  sustain  the  position  for  which  it  has  been  cited.  In  that 
case  an  infant  purchased  land,  and  gave  his  note,  with  sureties, 
for  the  purchase  money.  On  coming  of  age,  he  disaffirmed  the 
contract,  and  surrendered  the  premises,  which  he  had  improved, 
to  the  vendor.  In  an  action  on  the  note  it  was  held  that  there 
could  be  no  recovery  against  the  sureties,  not,  however,  because 
the  principal  was  not  liable,  but  because  when  the  plaintiff  got 
back  the  land  the  consideration  for  the  note  was  extinguished. 
The  court,  so  far  from  impugning  the  principle  just  stated,  took 
occasion  to  emphatically  confirm  it,  remarking  that  it  was 
' '  undoubtedly  correct  that  infancy  does  not  protect  the  indorsers 
or  sureties  of  an  infant,  or  those  who  have  jointly  entered  into 
his  voidable  undertakings,"  and  that  the  cases  in  which  this 
principle  had  been  decided  were  clearly  distinguishable  from 
the  case  then  before  the  court.  In  the  present  case  there  was  no 
disaffirmance  before  the  institution  of  the  suit,  and  if,  in  any 
sense,  there  could  be  said  to  have  been  a  surrender  of  the  prop- 
erty, the  consideration  for  which  the  deed  of  trust  was  executed 
has  certainly  not  been  extinguished. 


LEE  v.  YANDELL.     1887. 
69  Texas  34;  6  8.  W.  Rep.  665. 

Commissioners'  decision.  Appeal  from  district  court,  Nolan 
county;  William  Kennedy,  Judge. 

MALTBEG,  J.  The  third  charge  was  as  follows:  "If  you  find 
from  the  evidence  that  the  defendant  Yandell,  at  the  time  he 
siemed  the  note  sued  on,  was  of  unsound  mind  to  such  an  extent 


LEE  v.  YANDELL.  139 

as  to  be  unable  to  comprehend  the  nature,  meaning,  and  effect 
of  his  act  in  signing  such  note,  you  will  return  a  verdict  for  de- 
fendants. ' '    This  was  also  assigned  as  error,  and,  being  the  only 
instruction  given  in  reference  to  Yandell's  sanity,  it  should  be 
considered  in  the  light  of  all  the  facts  proven  on  the  trial  in  refer- 
ence to  that  subject.    While  it  must  be  regarded  as  an  imperfect 
presentation  of  the  law  of  the  case,  as  a  general  proposition  it 
cannot  be  said  to  be  incorrect ;  and  the  plaintiff  not  having  called 
the  attention  of  the  court  to  other  phases  of  the  question,  by  ask- 
ing appropriate  instructions,  ordinarily  there  would  not  be  error 
in  the  omission.    Farquhar  v.  Dallas,  20  Tex.  200;  Gallagher  v. 
Bowie,  66  Tex.  265.     In  this  case,  however,  two  other  persons 
signed  said  note  as  sureties;  and,  under  the  charge,  the  jury 
found  in  favor  of  said  sureties  as  well  as  the  principal,  Yandell. 
As  a  general  proposition,  whenever  a  principal  on  a  note  is  dis- 
charged, his  sureties  will  be  also ;  but  to  this  rule  there  are  certain 
well  established  exceptions.    For  instance,  the  note  of  a  married 
woman  is  generally  held  to  be  void;  but  if  persons,  not  them- 
selves under  disability,  sign  the  note  of  a  married  woman,  with- 
out the  payee  having  been  guilty  of  fraud  or  deceit  in  procuring 
the  signature  of  such  married  woman,  the  sureties  would  be     j, 
liable,  though  the  principal  be  discharged.    2  Daniel,  Neg.  Inst. 
§  1306a ;  Davis  v.  Statts,  43  Ind.  103 ;  Allen  v.  Berryhill,  27  Iowa 
534;  Hicks  v.  Randolph,  3  Baxt.  352.     The  same  principle  has 
been  extended  to  sureties  on  notes  executed  by  infants,  and  it 
is  believed  that  no  valid  reason  can  be  given  why  sureties  of  a 
person  of  unsound  mind  should  not  be  held  liable  under  like 
circumstances,  though  the  principal  be  discharged ;  especially  so, 
when  the  payee  of  the  note  is  ignorant  of  the  fact  that  the  princi- 
pal is  a  lunatic,  as,  in  such  case,  a  recovery  might  be  had  even 
against  the  lunatic,  if  the  payee  acted  in  good  faith.    2  Pom.  Eq. 
Jur.  §  946.    The  contract  of  a  surety  is  that  if  the  principal  does 
not  pay,  he  will ;  and  sound  policy,  as  well  as  the  plainest  prin- 
ciples of  justice,  demand  that  when  there  is  a  valid  considera- 
tion, and  the  payee  has  done  nothing  to  deceive  or  mislead  either 
principal  or  surety,  and  the  principal  is  held  to  be  not  liable  on 
account  of  some  disability  existing  at  the  time  of  the  making  of 
the  contract,  whether  such  disability  be  coverture,  infancy,  or 
unsoundness  of  mind,  the  surety  should  be  held  to  the  terms 
of  his  contract.     The  reason  given,  in  some  of  the  cases,  why 


140  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

the  surety  of  a  married  woman  is  held,  is  that  the  payee  and  the 
<  surety  knew  at  the  time  that  the  contract  was  made  that  the 
married  woman  might  refuse  to  pay,  and  that  the  contract  was 
made  in  reference  thereto ;  the  surety  binding  himself  to  pay  in 
case  she  should  avail  herself  of  her  legal  rights.  In  case  of  a 
lunatic,  it  might  be  presumed  that,  if  the  payee  knew  of  the 
disability,  the  sureties,  being  his  close  friends,  would  also  know 
of  it,  and  that  the  contract  was  made  in  reference  to  that  state 
of  facts.  There  was  no  evidence  that  Lee  had  in  any  manner 
deceived,  over-reached,  or  defrauded  Yandell  in  procuring  him 
to  sign  the  note ;  hence  we  are  of  opinion  that  the  charge  of  the 
court  should  have  been  limited  to  Yandell,  and  the  question  sub- 
mitted as  to  the  liabilities  of  the  sureties,  on  the  principles 
herein  enunciated. 


CHAPTER  V. 

ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

a.    An  absolute  promise  of  guaranty  requires  no  notice  of  accep- 
tance. 

WILCOX  v.  DRAPER.    1881. 
12  Nebraska  138;  10  N.  W.  Eep.  579. 

Error  to  the  district  court  for  Knox  county.  Tried  below 
before  BARNES,  J.  The  facts  appear  in  the  opinion. 

Nelson  J.  Cramer  and  R.  E.  W.  Spargus,  for  plaintiff  in  error, 
cited  Revised  Codes  of  Dakota  (Civil  Code)  §§  1654,  1659,  1688, 
1895;  Smith  v.  Dann,  6  Hill  (N.  Y.)  543;  Union  Bank  v.  Coster 
Executors,  3  New  York  203;  Douglass  v.  Rowland,  24  Wendell 
35 ;  Whitney  v.  Groot,  24  Id.  82 ;  Allen  v.  Rightmere,  20  Johns. 
365 ;  Horsen  v.  Pike,  16  Ind.  140 ;  McNaughton  v.  Conklin,  9  Wis. 
9 ;  I.  Parsons  on  Contracts  478  (note  i) ;  Id.,  14  (note  e) ;  Parsons 
Mercantile  Law  67. 

Solomon  Draper,  pro  se. 

MAXWELL,  Ch.  J. 

This  is  an  action  upon  a  guaranty,  of  which  the  following  is  a 
copy: 


WILCOX  v.  DRAPER.  141 

"Niobrara,  Neb.,  July  20th,  1878. 
E.  P.  Wilcox,  Esq.,  Yankton,  D.  T. 

Dear  Sir: — The  bearer  is  Mr.  E.  Eldridge,  of  our  town  of 
Niobrara.  He  wishes  to  buy  a  bill  of  lumber  for  a  house  for 
myself  and  will  want  a  short  time  on  part  of  it.  ^f  you  will  »i  // 
accommodate  him  you  will  greatly  oblige  me  and  I  will  see  you 
paid  as  he  agrees^  'Any  statement  that  he  makes  to  you  in  regard 
to  you  and  your  brother  starting  a  lumber  yard  here  and  pur- 
chasing wheat,  you  may  depend  upon.  We  are  all  quite  anxious 
to  have  you  go  into  that  business  here. 

Very  respectfully, 

S.  DRAPER." 

The  petition  states,  that  on  the  faith  of  this  guaranty,  the 
plaintiff  on  the  24th  of  July,  1878,  sold  to  said  Eldridge  a  bill 
of  lumber  for  the  defendant's  house,  amounting  to  the  sum  of 
$182.65,  $50.00  being  paid  at  the  time  of  receiving  said  lumber, 
and  a  credit  of  thirty  days  being  given  for  the  balance;  that 
Eldridge  executed  a  promissory  note  for  $132.65,  payable  at  the 
First  National  Bank  of  Yankton,  in  thirty  days  from  July  24th, 
1878 ;  that  no  part  of  the  same  has  been  paid,  and  that  after  said 
note  became  due,  the  plaintiff  recovered  judgment  against 
Eldridge  for  the  amount  of  same;  that  an  execution  was  duly 
issued  on  said  judgment  and  returned  wholly  unsatisfied,  etc. 
A  demurrer  to  the  petition  was  sustained  in  the  court  below  and 
the  action  dismissed.  The  cause  is  brought  into  this  court  by 
petition  in  error. 

There  is  no  allegation  in  the  petition  that  Draper  was  notified 
of  the  acceptance  of  the  guaranty.  And  it  is  claimed  that  such 
an  allegation  is  necessary  to  entitle  the  plaintiff  to  recover. 

In  Douglass  v.  Reynolds,  7  Peters,  113-129,  the  action  was  upon 
the  following  guaranty: 

"Port  Gibson,  December,  1807. 
Messrs.  Reynolds,  Byrne  &  Co., 

Gentlemen:  Our  friend,  Mr.  Chester  Haring,  to  assist  him  in 
business  may  require  your  aid  from  time  to  time,  either  by  ac- 
ceptance or  endorsement  of  his  paper,  or  advances  in  cash.  In 
order  to  save  you  from  harm  in  so  doing,  we  do  hereby  bind  our- 
selves, severally  and  jointly,  to  be  responsible  to  you  at  any  time 
for  a  sum  not  exceeding  eight  thousand  dollars,  should  the  said 
Chester  Haring  fail  to  do  so.  Your  obedient  servants, 

JAMES  S.  DOUGLASS, 
THOMAS  G.  SINGLETON, 
THOMAS  GOING." 


142  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

On  the  trial  of  the  cause  in  the  circuit  court  the  defendants 
asked  the  court  to  instruct  the  jury  "that  to  entitle  the  plain- 
tiffs to  recover  on  said  letters  of  guaranty,  they  must  prove  that 
notice  had  been  given,  in  a  reasonable  time  after  said  letters  of 
guaranty  had  been  accepted  by  them,  to  the  defendants  that  the 
same  had  been  accepted."  The  opinion  of  the  court  was  de- 
livered by  STORY,  J.,  who  says :  "  It  is  sufficient  for  us  to  declare, 
that  in  point  of  law  the  instruction  asked  was  correct  and  ought 
to  have  been  given.  A  party  giving  a  letter  of  guaranty  has  a 
right  to  know  whether  it  is  accepted  or  not.  It  may  be  most 
material,  not  only  as  to  his  responsibility,  but  as  to  his  future 
rights  and  proceedings.  It  may  regulate  in  a  great  measure  his 
course  of  conduct  and  his  exercise  of  vigilance  in  regard  to  the 
party  in  whose  favor  it  is  given."  The  judgment  was  reversed, 
because  of  this  and  an  erroneous  instruction  given.  The  case 
was  again  before  the  court  in  1838,  and  is  reported  in  12  Peters 
497-506,  and  the  rule  as  to  notice  adhered  to. 

In  Lee  v.  Dick,  10  Peters  482,  the  action  was  brought  on  the 
following  guaranty,  contained  in  a  letter  addressed  to  the  plain- 
tiffs: 

"Gentlemen:  Nightingale  and  Dexter  of  Henry  county,  Tenn., 
wish  to  draw  on  you  at  six  and  eight  months.  You  will  please 
accept  their  draft  for  $2,000.00,  and  we  do  hereby  guaranty  the 
punctual  repayment  of  it." 

It  was  held  that  the  party  accepting  was  bound  to  give  notice 
of  his  intention  to  accept  and  act  under  the  guaranty,  if  not  at 
once,  at  least  within  a  reasonable  time. 

In  Adams  v.  Jones,  12  Peters  207,  STORY,  J.,  in  delivering  the 
opinion  of  the  court  says:  "We  are  all  of  the  opinion  that 
notice  is  necessary ;  and  that  is  not  now  an  open  question  in  this 
court,  after  the  decisions  which  have  been  made  in  Eussell  v. 
Clarke,  7  Cranch,  69;  Edmundson  v.  Drake,  5  Peters,  624; 
Douglass  v.  Reynolds,  7  Peters,  113 ;  Lee  v.  Dick,  10  Peters,  482, 
and  again  recognizing  it  at  the  present  term  in  the  case  of  Rey- 
nolds v.  Douglass.  It  is  in  itself  a  reasonable  rule,  enabling  the 
guarantor  to  know  the  nature  and  extent  of  his  liability,  to  ex- 
ercise due  vigilance  in  guarding  himself  againt  losses,  which 
might  otherwise  be  unknown  to  him,  and  to  avail  himself  of  the 
appropriate  means  in  law  and  equity,  to  compel  the  other  parties 
to  discharge  him  from  future  responsibility." 

In  the  case  of  the  Louisville  Manf 'g  Co.  v.  Welch,  10  Howard 


WILCOX  v.  DRAPER.  143 

461-475,  tlie  court  say:  "The  rule  requiring  this  notice  within 
a  reasonable  time  after  the  acceptance,  is  absolute  and  imper- 
ative in  this  court,  according  to  all  the  cases ;  it  is  deemed  essen- 
tial to  the  inception  of  the  contract." 

These  decisions  have  been  followed  by  the  courts  of  a  number 
of  the  states.    Mussey  v.  Raynor,  22  Pick.  223 ;  Kay  v.  Allen,  9       £ 
Barr.  320;  Kinchela  v.  Holmes.  7  B.  Monroe  5;  Lowe  v.  Beck- 
with,  14  Id.  184 ;  Taylor  v.  Wetmore,  10  Ohio  490 ;  Eankin  v. 
Childs,  jn\lo.Ji74j  Lawson  v.  Townes,  2  Ala.  373;  Walker  v.         / 
Forbes,  25  Id.  139 ;  Fay  v.  Hall,  Id.  704;  Hill  v.  Calvin,  4  How.      X 
(Miss.)  231. 

An  examination  of  these  cases  will  show  that  no  distinction  is 
made  between  a  guaranty  and  an  offer  of  guaranty.  The  same 
rule  is  applied  to  both.  It  will  also  be  found  that  there  is  great 
uncertainty  as  to  what  hi  point  of  time  will  be  sufficient  notice, 
and  what  will  dispense  with  it  altogether. 

In  Douglas  v.  Howland,  24  Wend.  35-49,  it  is  denied  that  this 
doctrine  has  the  sanction  of  the  courts  of  England,  or  is  founded 
on  correct  principles.  COWEN,  J.,  in  reviewing  the  authorities 
as  to  notice,  where  the  parties  are  acting  under  commercial  guar- 
anties, shows  that  the  cases  holding  notice  to  be  necessary  are  not 
sanctioned  by  the  principles  of  common  or  commercial  law,  but 
must  stand  upon  the  reason  of  the  rule.  He  says :  "I  am  aware 
that  there  are  a  class  of  cases  which  hold  that  under  a  contract 
guaranteeing  a  debt,  yet  to  be  made  by  another,  the  guarantor 
is  not  liable  to  a  suit  without  notice  that  the  guaranty  has  been 
accepted  and  acted  upon.  Indeed,  they  go  farther ;  if  notice  of 
accepting  the  guaranty  be  not  given  within  a  reasonable  time,  no 
debt  whatever  arises.  Babcock  v.  Bryant,  12  Pick.  133.  I  will 
only  say,  that  these  cases  have  no  foundation  in  English  juris- 
prudence, where  the  adjudications  are  numerous  and  clear  the 
other  way.  Harris  v.  Ferrand,  Hardr.,  36,  42.  In  Com.  Tit. 
Plead.  C.  75,  it  is  said  on  a  promise  to  pay,  on  the  performance 
of  an  act  by  the  promisee  to  a  third  person,  the  promisee  need  not 
give  any  notice ;  for  the  promisor  takes  it  on  himself  to  get  notice 
at  his  peril.  And  vide  as  to  a  guaranty  of  a  debt  already  due. 
Warrington  v.  Furber,  8  East.  242 ;  Swinyard  v.  Bowes,  5  Maule 
&  Sel.  62.  All  the  cases  requiring  mere  guarantors  to  be  treated 
as  endorsers,  rest  on  dicta  of  two  distinguished  American  judges, 
in  cases  of  mixed  character,  where  the  defense,  it  was  agreed, 


144  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

would  be  complete,  independent  of  any  such  ground.  MARSHALL, 
Ch.  J.,  in  Eussell  v.  Clark's  Ex'rs,  7  Cranch  69,  72 ;  STORY,  J.,  in 
Cremer  v.  Higginson,  1  Mason  323,  340 ;  Russel  v.  Perkinds,  Id. 
368,  371 ;  and  Rapelye  v.  Bailey,  3  Conn.  R.  438.  The  counsel 
cited  no  English  books,  and  all  the  learned  court  found  there  was 
one  case,  in  which  they  remark,  that  EYRE,  C.  J.,  seemed  to  have 
been  of  opinion  that,  in  guaranties  for  good  behavior,  notice  of 
any  embezzlement  ought  to  be  given  in  a  reasonable  time.  Peel 
v.  Tatlock,  1  Bos.  &  Pull.  419.  The  decision  was  finally  rested 
on  the  dictum  of  Chief  Justice  MARSHALL,  and  was  very  strong  in 
favor  of  the  guarantor.  It  was  on  a  guaranty  to  pay  for  goods 
deliverable  to  another,  on  such  terms  as  the  guarantee  and  the 
principal  should  agree  on,  if  the  principal  did  not  pay;  and 
though  strictly  followed  by  a  sale  and  delivery  to  the  principal 
and  a  default  on  his  part  to  pay,  it  was  held  that  no  action  would 
lie;  at  least,  till  notice  of  the  circumstances  had  been  given  by 
the  plaintiff  to  the  surety.  Other  cases  hold  guarantees  of  this 
character  to  almost  the  same  degree  of  strictness  in  giving  notice 
to  guarantors,  as  the  law  merchant  has  introduced  between  in- 
dorsees and  indorsers.  Green  v.  Dodge,  2  Ham.  R.  430,  439, 440 ; 
Norton  v.  Eastman,  4  Greenl.  R.  521.  In  the  latter  case,  a  like 
principle  was  imputed  to  a  decision  of  this  court  in  Stafford  v. 
Low,  16  Johns.  67.  The  latter,  however,  merely  holds  that  a 
declaration  made  to  another  of  a  willingness  to  become  a  guaran- 
tor, if  required,  would  not  render  the  declarant  liable  as  a  guar- 
antor, without  a  compliance  with  the  express  condition,  which 
means  giving  notice.  In  short,  that  the  letter  on  which  the 
plaintiff  based  his  claim  did  not  amount  to  a  guaranty.  Id.  69, 
70.  Mclver  v.  Richardson,  4  Maule  &  Selw.  667,  was  there  cited 
as  a  case  of  similar  character.  Beekman  v.  Hale,  17  Johns.  R. 
134,  puts  both  of  the  former  cases  on  that  footing,  and  acts  upon 
them,  adding,  there  must  be  notice  or  a  subsequent  consent  to 
become  a  guarantee.  Such  cases  are  exceptions  to  the  general 
rule,  that  notice  is  not  required.  They  are  cases  of  express  con- 
dition, like  Birks  v.  Tippet,  already  cited  from  Saunders.  And 
vide  1  Saund.,  33  note,  (2) ;  Com.  Dig.  Plead.  C.  69.  It  is  proper 
to  say  that  this  place  in  Comyn  's  Digest  is  cited  by  PUTNAM,  J., 
in  Babcock  v.  Bryant.  But  the  cases  cited  by  Comyn  are  like 
those  in  the  note  1  Saund.  33,  where  the  request  or  notice  is  ex- 
pressly required.  ' '  There ' '  says  Sergeant  Williams, ' '  the  request 


WILCOX  v.  DRAPER.  145 

is  parcel  of  the  contract. ' '  All  the  cases  cited  by  him  are  of  col- 
lateral matters,  to  be  done  on  request,  by  the  very  words  of  the 
contract,  and  even  these  cases  do  not  extend  to  a  proper  debt  or 
duty  of  the  party  promising.  There,  though  he  by  words,  make 
the  request  or  notice  a  condition,  yet  the  bringing  of  the  action 
is  a  sufficient  notice,  and  such  is  the  very  first  case  cited  in  the 
note.  Yelv.  66.  Vide  Com.  Dig.  Plead.  C.  70.  I  forbear  to  search 
further  for  the  English  law,  after  the  admission  implied  by 
Douglass  v.  Reynolds,  7  Peters  113,  125.  The  question  was  there 
examined  by  Mr.  Justice  STORY.  The  only  English  cases  cited 
by  him,  are :  Oxley  v.  Young,  2  H.  Black  613,  and  Peel  v.  Tat- 
lock,  the  latter  being  also  noticed,  as  mentioned  before,  by  the 
supreme  court  of  Connecticut.  In  Oxley  v.  Young,  the  surety  was 
holden  liable;  and  I  do  not  find  any  countenance  given  to  the 
idea,  that  notice  was  necessary  by  way  of  condition.  The  de- 
fendant ordered  goods  for  another,  and  guaranteed  that  he 
should  pay  for  them.  They  were  accordingly  shipped  to  him  by 
the  plaintiff,  the  guarantee.  It  is  true  that  notice  of  the  ship- 
ment was  given  to  the  defendant;  and  he  sought  to  raise  a  de- 
fense, on  the  subsequent  neglect  of  the  vendor.  EYRE,  C.  J.,  said 
the  right  to  sue  on  the  guaranty  attached  when  the  order  was  put 
in  a  train  for  execution,  subject  to  its  being  actually  executed, 
and  the  right  could  not  be  divested,  even  by  the  wilful  neglect 
of  the  vendor.  As  to  Peel  v.  Tatlock,  it  has  been  impossible  for 
me  to  perceive  that  even  an  intimation  was  intended  of  notice 
being  essential.  The  difficulty  felt  by  EYRE,  C.  J.,  seems  to  have 
been,  whether  the  creditor  had  not  defrauded  the  guarantor  by 
industrious  concealment.  I  may  then,  I  think,  repeat  with  great 
confidence,  that  all  the  cases  requiring  notice  are  American,  and 
depart  from  the  rule  of  the  common  law.  Douglass  v.  Reynolds, 
may  be  sustained  by  the  dictum  of  C.  J.  MARSHALL;  and  indeed 
by  Edmundston  v.  Drake,  5  Pet.,  624,  where  the  court,  with  that 
learned  chief  justice  at  its  head,  carried  the  dictum  into  a  direct 
adjudication.  No  English  case  is  claimed  by  Mr.  Justice  STORY, 
in  any  of  his  decisions,  as  sustaining  the  doctrine  in  the  least. 
C.  J.  MARSHALL  does  not  even  cite  one  in  his  opinions.  The  short 
answer  which  English  cases,  decided  long  before  our  revolution, 
furnish,  is,  that  the  guarantor  by  inquiring  of  his  principal,  with 
whom  he  is  presumed  to  be  on  intimate  terms,  may  inform  him- 
self perfectly,  whether  the  guaranty  were  accepted,  the  con- 
10 


146  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

ditions  fulfilled,  and  payment  made.  Where  that  can  be  done, 
the  cases  all  hold  that  notice  is  not  necessary,  even  as  prelimi- 
nary to  the  bringing  of  an  action,  much  less  to  found  a  right 
of  action.  The  only  exception  is  the  well  known  one  of  collateral 
parties  to  bills  of  exchange  or  promissory  notes.  Vide  Phillips 
v.  Astling,  2  Taunt.  206." 

The  supreme  court  of  Ohio  in  Powers  and  Weightman  v. 
Bumcratz,  12  Ohio  State  284,  after  quoting  a  portion  of  the 
above  opinion,  say:  "We  have  carefully  examined  the  cases  of 
Oxley  v.  Young,  .2  H.  Bl.  613,  and  Peel  v.  Tatlock,  1  Bos.  &  Pull. 
419,  and  cannot  see  how  the  fairness  and  correctness  of 
the  comment  upon  them  of  COWEN,  J.,  before  quoted,  can 
be  denied  or  disputed.  If  there  be  English  cases  sustain- 
ing the  doctrine  of  Douglass  v.  Reynolds,  they  have  not 
been  cited  in  the  decisions  of  the  courts  of  the  United  States. 
In  several  of  the  cases  decided  in  the  state  courts  English  cases 
are  cited.  In  Craft  v.  Isham,  13  Conn.,  28,  39,  which,  though 
decided  before  Douglass  v.  Howland,  had  not  been  reported,  and 
is  therefore  not  referred  to  by  COWEN,  J.,  it  is  said,  as  to  the  de- 
cisions in  Douglass  v.  Reynolds,  and  Adams  v.  Jones,  that,  "so 
far  from  being  opposed  to,  or  unsupported  by,  authorities,  they 
are  founded  on  principles  which  have  long  since  been  settled,  and 
are  familiar  in  Westminster  Hall.  We  barely  refer  to  the  author- 
ities." The  cases  cited  are:  Mclver  v.  Richardson,  1  Maul.  & 
Sel.  557;  Gaunt  v.  Hill,  1  Stark.  Ca.  10;  Symons  v.  Want,  2 
Stark.  Ca.,  371;  Payne  v.  Ives,  3  Dowl.  &  Ry.,  664;  Glyn  v.  Her- 
tel,  8  Taunt.  208 ;  Bacon  v.  Chesney,  1  Stark.  Ca.  192 ;  Combe  v. 
Wolf,  8  Bing.  156 ;  Phillips  v.  Astling,  2  Taunt.  206 ;  Morris  v. 
Cleasby,  4  Maul.  &  Sel.  566.  The  bearing  on  the  point  of  some 
of  these  eases  it  is  difficult  to  perceive.  Bacon  v.  Chesney  was 
the  case  of  a  guaranty  for  goods  to  be  sold  on  eighteen  months 
credit,  and  it  was  claimed  that  there  had  been  a  credit  of  only 
twelve,  but  it  being  shown  there  was  a  mistake,  the  plaintiff  re- 
covered. In  Coombe  v.  Woolf,  the  guarantor  was  held  to  ba 
discharged  by  the  giving  time  without  his  consent.  In  Phillips 
v.  Astling,  the  guaranty  was  the  price  of  goods  to  be  paid  by  a 
bill,  and  the  question  was  as  to  notice  of  its  non-payment.  In 
Morris  v.  Cleasby,  there  had  been  a  sale  by  a  factor  on  a  del 
credere  commission.  It  was  said  such  a  commission  pre-supposes 
a  guaranty,  and  that  the  obligation  of  the  factor  arises  on  the 


WILCOX  v.  DRAPER.  147 

guaranty.  "The  guarantor  is  to  answer  for  the  solvency  of  the 
vendee,  and  to  pay  the  money,  if  the  vendee  does  not;  on  the 
failure  of  the  vendee  he  is  to  stand  in  his  place,  and  to  make  his 
default  good.  Where  the  form  of  the  action  makes  it  necessary 
to  declare  upon  the  guaranty,  application  to  the  principal  must 
be  stated  on  the  record.  In  all  cases  it  must,  if  required,  be 
proved,  though  in  the  case  of  a  foreigner,  very  slight  evidence 
may  be  sufficient."  4  M.  &  S.  574.  It  will  be  seen  that  in  none 
of  these  cases  is  there  anything  as  to  the  acceptance  of  a  guar- 
anty, and  so  far  as  any  of  them  bear  on  the  doctrine  of  notice 
imposed  by  the  contract,  and  that  in  reference  to  a  collateral 
liability  for  the  payment  of  a  bill  of  exchange.  2  Taunt.  206. 

The  supreme  court  of  Ohio  in  the  case  cited,  after  an  elab- 
orate review  of  the  cases,  overruled  Taylor  v.  Wetmore,  10  Ohio 
490.  The  court  say,  page  262:  "We  are  aware  of  the  impor- 
tance of  adhering  to  former  decisions,  but  do  not  think  we  are 
bound  by  an  opinion  which  it  was  not  necessary  to  express  and 
evidently  was  expressed  without  a  thorough  consideration  of  the 
question. ' ' 

The  guaranty  in  Mclver  v.  Richardson,  was  in  these  words: 
"I  understand  A.  &  Co.,  have  given  you  an  order  for  rigging, 
etc.,  which  will  amount  to  about  four  thousand  pounds.  I  can 
assure  you  from  what  I  know  of  A 's  honor  and  probity,  you  will 
be  perfectly  safe  in  crediting  them  to  that  amount;  indeed  I  have 
no  objection  to  guaranty  you  against  any  loss  from  giving  them 
this  credit."  The  court  say  the  question  was  "whether  the 
paper  imports  to  be  a  perfect  and  conclusive  guaranty.  The 
paper  therefore  must  be  construed  according  to  the  plain  natural 
import  of  its  terms.  The  import  is,  that  the  party  signing  it  un- 
derstood that  A.  &  Co.  had  given  an  order  for  goods  amounting 
to  about  £4,000.00;  that  this  order  remained  unexecuted;  and 
then,  as  if  a  question  had  been  put  to  the  defendant  respecting 
the  honor  or  probity  of  A.  &  Co.,  the  defendant  says :  I  assure 
you  from  what  I  know  of  A.  you  will  be  perfectly  safe  in  credit- 
ing them  to  that  amount;  and  then  added:  indeed,  I  have  no 
objection  to  guaranty  you  against  any  loss  from  giving  them 
credit;  which  words  import,  that  if  application  was  made  he 
would  guaranty,  etc.  Considering  this  as  a  mere  overture  to 
guaranty,  it  appears  to  us  that  the  defendant  ought  to  have  had 
notice  that  it  was  so  regarded,  and  meant  to  be  accepted,  or 


148  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

that  there  should  have  been  a  subsequent  assent  on  his  part  to 
convert  it  into  a  conclusive  guaranty. "    1  M.  &  S.,  583. 

In  Symons  v.  Want,  2  Stark.,  371,  the  offer  of  guaranty  was  as 
follows:  "I  have  no  objection  to  guaranty  the  payment  of  the 
rent  as  far  as  that  of  each  quarter  during  Mr.  T.  "Want's  contin- 
uance in  possession."  The  court  directed  a  non-suit  upon  the 
ground  that  it  was  a  mere  offer  to  guaranty,  and  no  request 
to  guarantee  or  notice  of  acceptance  of  the  offer  was  proved.  See 
also  Mozley  v.  Tinkler,  1  C.  and  M.,  692. 

But  it  may  be  said  that  the  guaranty  in  this  case  being  indefi- 
nite as  to  the  amount  of  the  debt,  and  time  for  which  credit 
should  be  given,  notice  was  therefore  required.  This  question 
was  raised  in  Powers  and  Weightman  v.  Bumcratz.  The  court 
say,  pages  291-2:  "We  have  examined  some  of  those  cases,  in 
which  the  guaranty  being  indefinite  as  to  the  amount  and  time 
of  the  advances,  something  might  be  expected  in  the  pleadings, 
or  points  made,  as  to  the  notice  of  the  acceptance  of  the  guar- 
anty, but  nothing  of  the  kind  appears.  Johnson  v.  Nichols,  1  C. 
B.  251;  Chapman  v.  Sutton,  2  Id.  634;  Boyd  v.  Moyle,  Id.  644; 
Martin  v.  Wright,  6  Q.  B.  917 ;  Bell  v.  W.  P.  Bank  of  England, 
9  C.  B.  154;  Harlor  v.  Carpenter,  3  J.  Scott  172;  Hitchcock 
v.  Humfrey,  5  M.  &  G.  559;  Mayer  v.  Isaac,  6  M.  &  W.  605; 
Liverpool  Borough  Bank  v.  Eccles,  4  H.  &  N.  Exc'h.  139;  Alien 
v.  Kenning,  9  Bingh.  618. 

In  the  case  of  White  v.  Woodward,  5.  C.  B.,  810,  814,  it  was 
claimed  by  counsel  that :  ' '  The  declaration  should  have  averred 
notice  to  the  defendant  within  a  reasonable  time  after  the  supply 
of  the  goods. ' '  He  said  this  question  was  first  broached  in  Peel 
v.  Tatloek,  1  B.  &  P.  419,  and  notice  held  necessary  by  Dr.  Story 
in  Cremer  v.  Higginson,  1  Mason,  323,  and  1  Story,  R.  22,  33. 
CRESSWELL,  J.,  said:  "Suppose  the  defendant  had  no  notice  of 
the  supply  to  Slater,  and  no  notice  of  the  non-payment  by  him, 
until  the  amount  was  demanded  of  him.  What  then?"  The 
counsel  replied:  "The  demand,  if  within  a  reasonable  time, 
would  be  notice."  Wilde,  C.  J.,  "You  do  not  show  that  it  was 
not  within  a  reasonable  time.  The  defendant  was  liable  ipso 
facto,  upon  Slater 's  failure  to  pay. ' '  Such  is  the  only  mention 
of  the  doctrine  as  to  notice  of  acting  on  a  guaranty,  we  have 
been  able  to  find  in  the  English  reports. 


WILCOX  v.  DRAPER.  149 

In  the  case  of  Smith  v.  Dann,  6  Hill,  543,  the  guaranty  was 
as  follows: 

"Avon,  October  10,  1840. 
Messrs.  F.  F.  Smith  &  Co. 

Gentlemen:  If  you  will  let  Messrs.  Steele  and  Wall  of  this 
village,  grocers  and  bakers,  have  one  hundred  dollars  in  goods  at 
your  store  on  a  credit  of  three  months,  you  may  regard  me  as 
guarantying  the  payment. 

Yours  truly, 

AMOS  DANN." 

It  was  held  that  no  notice  was  necessary.  The  court  say: 
"The  defendant  invited  the  plaintiffs  to  sell  goods  to  Steele  and 
Wall,  on  his  promise  to  guaranty  the  payment  of  the  debt.  The 
plaintiffs  assented  and  delivered  the  goods.  The  proposition  of 
one  party  was  accepted  by  the  other;  and  according  to  our  no- 
tions of  the  law,  this  made  a  complete  contract.  Nothing  further 
was  necessary  to  its  consummation.  If  the  defendant  wanted  no- 
tice, and  did  not  get  it  from  the  persons  whom  he  thought  worthy 
of  credit,  it  was  his  business  to  enquire  and  ascertain  what  had 
been  done.  There  is  nothing  in  the  defendant's  undertaking 
which  looks  like  a  condition,  or  even  a  request,  that  the  plaintiffs 
should  give  him  notice  if  they  acted  upon  the  guaranty,  and 
there  is  no  principle  upon  which  we  can  hold  that  notice  was  an 
essential  element  of  the  contract. 

The  cases  of  Beckman  v.  Hale,  17  Johns,  134,  and  Stafford  v. 
Low,  16  Id.,  67,  went  upon  the  ground  that  there  was  nothing 
more  than  an  overture  or  proposition.  But  here  the  under- 
taking was  absolute." 

In  the  case  of  the  Union  Bank  v.  Coster's  Executors,  3  Corn- 
stock  203,  the  letter  of  credit  and  guaranty  were  as  follows : 

"New  York,  29th  May,  1841. 

Sir:  We  hereby  agree  to  accept  and  pay  at  maturity  any 
draft  or  drafts  on  us  at  sixty  days  sight,  issued  by  Messrs.  Kohn, 
Daron  &  Co.,  of  your  city,  to  the  extent  of  twenty-five  thousand 
dollars,  and  negotiated  through  your  bank.  We  are  respectfully, 
sir,  Your  obedient  servants, 

HECKSHER  &  COSTER." 

At  the  foot  of  the  letter  of  credit  was  the  following  guaranty : 
"I  hereby  guarantee  the  due  acceptance  and  payment  of  any 
draft  issued  in  pursuance  of  the  above  credit,  John  G.  Coster." 


150  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

The  court  say:  "We  must  hold  the  law  to  be  settled  in  this 
state  that  where  the  guaranty  is  absolute,  no  notice  of  acceptance 
is  necessary.  Judge  COWEN  in  Douglass  v.  Howland,  24  Wend. 
35,  and  Judge  BRONSON  in  Smith  v.  Dann,  6  Hill,  543,  examined 
the  eases  at  length  upon  this  question,  and  showed  conclusively 
that  by  the  common  law  no  notice  of  the  acceptance  of  any  con- 
tract was  necessary  to  make  it  binding,  unless  it  be  made  a  con- 
dition of  the  contract  itself,  and  that  contracts  of  guaranty  do 
not  differ  in  that  respect  from  other  contracts. 

In  Carman  v.  Ellege,  40  Iowa  407,  and  Case  &  Co.  v.  Howard, 
41  Id.  479,  it  was  held  that  a  direct  promise  of  guaranty  re- 
quires no  notice  of  acceptance.  See  also  Farmers  &  Mechanics 
Bank  v.  Kerchival,  2  Mich.  504;  Thrasher  v.  Ely,  2  S.  &  M.  141; 
Williams  v.  Stanton,  5  Id.  347 ;  Wadsworth  v.  Allen,  8  Grattan, 
504;  Moore  v.  Holt,  10  Id.,  284-296;  2  Am.  Leading  Cases  103. 

The  question  here  involved  is  presented  to  this  court  for  the 
first  time.  A  desire  to  conform  our  rulings,  where  the  author- 
ities are  conflicting,  to  those  of  the  supreme  court  of  the  United 
States,  and  thus  secure  uniformity  of  decisions,  inclines  us  to 
follow  the  cases  decided  by  that  court.  But  it  is  of  much  greater 
importance  that  decisions  shall  be  based  upon  sound  principles 
and  correct  law.  The  rule  as  to  notice  in  case  of  guaranty  was 
unknown  to  the  common  law,  yet  it  is  sought  to  engraft  it 
on  our  jurisprudence  as  a  common  law  rule, — to  attach 
conditions  to  the  contract  of  guaranty  which  are  not  ap- 
plied to  other  contracts.  When  a  proposition  of  guaranty 
of  one  party  is  accepted  by  the  other,  this  makes  a  complete 
contract.  The  proposition  is  made  to  the  person  of  whom 
the  credit  is  desired,  and  he  accepts  it.  Upon  what  prin- 
ciples of  law  can  it  be  said  that  this  proposition,  which  was 
intended  to  be  accepted  and  to  take  effect  from  that  date, 
should  not  be  binding  on  the  guarantor  without  notice?  The 
guarantor  makes  the  person  whom  he  vouches  for  and  thinks 
worthy  of  credit,  so  far  his  agent  as  to  transmit  the  written 
guaranty  by  him.  Is  it  not  the  business  of  the  guarantor  to  en- 
quire of  him  about  what  has  been  done  under  the  guaranty  ?  We 
think  it  is.  We  therefore  hold  that  a  direct  promise  of  guaranty 
requires  no  notice  of  acceptance.  The  judgment  of  the  district 
court  is  reversed  and  the  cause  remanded  for  further  proceed- 
ings. 

Reversed  and  remanded. 


PLATTER  v.  GREEN.  151 

PLATTER  v.  GREEN.    1881. 
26  Kan.  252. 

Error  from  Cowley  District  Court. 

At  the  December  Term,  1880,  of  the  district  court,  M.  T. 
Green,  E.  T.  Williamson  and  Geo.  L.  Pratt,  partners  as  the  Chi- 
cago Lumber  Company,  recovered  a  judgment  against  Jas.  E. 
Platter  and  two  others,  who  bring  the  case  here.  The  opinion 
contains  a  statement  of  the  facts. 

The  opinion  of  the  court  was  delivered  by  VALENTINE,  J. :  This 
cause  was  tried  in  the  court  below  upon  the  following  agreed 
statement  of  facts : 

"Now  come  the  parties  to  the  above-entitled  cause,  by  their 
respective  attorneys,  and  submit  said  cause  to  the  court  for  its 
decision  and  judgment,  on  the  following  agreed  statement  of 
facts,  to  wit : 

"1st.  That  at  the  commencement  of  this  action,  and  at  the 
several  times  hereinafter  mentioned,  the  plaintiffs  were  and  now 
are  copartners,  doing  business  under  the  firm-name  of  the  Chi- 
cago Lumber  Company,  and  were  engaged  in  the  business  of 
selling  lumber  and  building  materials,  at  wholesale  and  retail, 
in  the  city  of  Wichita,  Sedgwick  county,  Kansas. 

"2nd.  That  at  the  several  times  hereinafter  mentioned,  the 
defendant,  T.  A.  Wilkinson,  was  engaged  in  the  business  of  sell- 
ing lumber  and  building  materials  in  the  city  of  Winfield,  Cow- 
ley  county,  and  state  of  Kansas. 

"3d.  That  the  said  T.  A.  Wilkinson,  defendant,  desiring  to 
obtain  of  the  plaintiffs  lumber  and  building  materials  on  credit, 
and  having  requested  the  plaintiffs  to  furnish  him  such  lumber 
and  building  materials,  and  the  plaintiffs  having  declined  so  to 
do  unless  the  said  Wilkinson  should  furnish  security  for  the 
payment  of  the  same,  the  said  Wilkinson  afterward  and  on  the 
llth  day  of  March,  1878,  presented  an  instrument  in  writing  to 
the  defendants  Platter,  Troup,  and  Curns,  with  the  request  that 
they  execute  the  same,  which  they  did  execute  on  the  day  afore- 
said, and  deliver  to  the  said  Wilkinson,  who  on  the  same  day  de- 
livered said  instrument  to  the  plaintiffs,  a  copy  of  which  instru- 
ment is  as  follows: 


152  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

"  'Winfield,  Kansas,  March  11,  1878. 

"  'We  hereby  authorize  the  Chicago  Lumber  Company,  of 
"Wichita,  Kansas,  to  furnish -to  T.  A.  "Wilkinson  such  building 
materials  as  he  may  wish,  not  exceeding  the  value  of  two  thou- 
sand dollars  at  once ;  and  if  the  said  T.  A.  Wilkinson  shall  fail  to 
pay  for  the  same,  either  in  money  or  material  received  from  the 
Chicago  Lumber  Company,  then  upon  ninety  days'  notice  we 
agree  to  pay  to  the  Chicago  Lumber  Company  the  amount  re- 
maining due  from  T.  A.  Wilkinson  to  the  Chicago  Lumber  Com- 
pany. 
"  'T.A.WILKINSON. 

JAS.  E.  PLATTER, 
M.  G.  TROUP, 
J.  W.  CURNS.' 

"4th.  That  in  reliance  on  said  written  instrument,  the  plain- 
tiffs furnished  said  Wilkinson  from  time  to  time  between  the  llth 
day  of  March,  1878,  and  the  19th  day  of  December,  1878,  both 
days  inclusive,  such  building  materials  as  he  wished,  that  the 
account  hereto  attached  and  marked  'Exhibit  A'  is  a  true  and 
correct  statement  of  the  account  kept  by  the  plaintiffs  with  the 
said  Wilkinson,  and  shows  correctly  the  respective  values  of  the 
several  amounts  of  lumber  and  building  materials,  and  the  re- 
spective dates  thereof,  furnished  by  the  plaintiffs  as  aforesaid, 
between  the  llth  day  of  March  and  the  19th  day  of  December, 
1878,  both  days  inclusive,  to  the  said  Wilkinson,  as  well  as  the 
payments  made  by  the  said  Wilkinson  to  the  plaintiffs  on  account 
of  such  lumber  and  building  materials,  between  the  llth  day 
of  March,  1878,  and  the  14th  day  of  January,  1878,  both  days 
inclusive,  and  the  respective  dates  of  such  payments. 

"5th.  That  on  the  14th  day  of  January,  1879,  the  plaintiffs 
and  said  Wilkinson  had  a  full  and  complete  settlement  of  their 
transactions  growing  out  of  the  furnishing  of  the  lumber  and 
materials  aforesaid,  and  in  such  settlement  it  was  mutually  as- 
certained and  agreed  by  and  between  the  plaintiffs  and  said 
Wilkinson,  that  there  was  due  and  payable  from  the  said  Wilkin- 
son to  the  plaintiffs,  on  account  of  the  lumber  and  building 
materials  so  furnished,  a  balance  of  $1,999.41,  which  the  said 
Wilkinson  then  and  ever  since  has  failed  to  pay  to  the  plaintiffs. 

"6th.  That  for  the  purposes  of  this  action  it  is  agreed  and 
understood  that  the  settlement  had  by  and  between  the  plaintiffs 
and  the  said  Wilkinson,  and  mentioned  in  the  above  fifth  sub- 
division of  this  agreement,  was  correct,  and  that  the  said  balance 


PLATTER  v.  GREEN.  153 

there  mentioned  of  $1,999.41  was  the  amount  justly  due  from 
the  said  Wilkinson  to  the  plaintiffs  at  the  time  of  said  settlement. 
"7th.  That  neither  of  the  defendants,  Platter,  Troup,  or 
Curns,  nor  either  of  them,  had  any  notice  or  knowledge  whatso- 
ever that  the  plaintiffs  had  accepted  the  guaranty  contained  in 
said  written  instrument,  or  that  plaintiffs  had  furnished  said 
Wilkinson  any  lumber  or  building  materials  thereunder,  or  that 
said  Wilkinson  had  made  default  in  the  payment  of  the  balance 
due  from  him  as  aforesaid  to  the  plaintiffs,  until  the  10th  day 
of  April,  1879 ;  that  on  the  day  last  aforesaid  the  plaintiffs  served 
on  the  defendants  Platter,  Troup  and  Curns,  severally,  a  written 
notice,  of  which  the  following  is  a  copy,  to-wit: 

"  'Wichita,  Kansas,  April  10,  1879. 

Mr.  T.  A.  Wilkinson,  in  account  with  Chicago  Lumber  Company. 
(Established  1866.     Douglas  Avenue,  near  depot.) 

To  balance $1,999.41 . 

"  'Messrs.  M.  G.  Troup,  J.  E.  Platter,  J.  W.  Curns:  Please 
take  notice,  that  Mr.  T.  A.  Wilkinson  has  failed  to  meet  the 
above  liability,  and  that  we  look  to  you  for  payment  within 
ninety  days  from  receipt  of  this  notice. 

"  'Yours,  &c.,  CHICAGO  LUMBER  COMPANY/ 

"That  the  defendant  Wilkinson,  at  several  tjmes  during  the 
furnishing  of  lumber  and  building  materials  aforesaid,  was  in- 
debted to  the  plaintiffs  in  excess  of  two  thousand  dollars,  on 
account  of  such  lumber  and  building  materials,  as  shown  by 
said  'Exhibit  A';  that  no  part  of  said  sum  of  money  has  been 
paid. 

"That  this  cause  shall  be  submitted  and  determined  on  the 
foregoing  facts,  and  if  it  is  determined  that  on  such  facts  the 
plaintiffs  are  entitled  to  recovery  in  the  action,  the  amount  of 
the  recovery  shall  be  nineteen  hundred  and  ninety-nine  41/100 
dollars,  and  seven  per  cent,  interest  thereon  from  the  10th  day 
of  July,  1879." 

Upon  the  foregoing  facts,  the  court  below  found  the  issues 
in  favor  of  the  plaintiffs  and  against  the  defendants,  and  ren- 
dered judgment  accordingly;  and  three  of  the  defendants, 
Platter,  Troup  and  Curns,  now  bring  the  case  to  this  court  for 
review.  They  claim  that  the  court  below  erred  for  various 
reasons : 

1.     They  claim  that  the  written  instrument  sued  on  was  only 


154  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

< 

a  proposition  or  offer  to  guarantee  payment  for  the  value  of 
the  building  materials  to  be  furnished  by  the  plaintiffs  below  to 
Wilkinson,  and  that  as  no  notice  of  the  acceptance  of  such  propo- 
sition or  offer  of  guaranty  was  given  by  the  plaintiffs  to  them 
at  any  time  before  the  lumber  was  furnished,  or  indeed  at  any 
time  afterward,  that  therefore  the  written  instrument  never  be- 
came a  binding  contract,  and  therefore  that  they  never  became 
liable  on  account  of  the  same. 

2.  That  even  if  said  written  instrument  became  a  binding 
contract,  still,  that  the  guaranty  contained  therein  was  not  a 
continuing  one,  but  that  it  simply  authorized  the  furnishing  of 
building  materials  at  only  one  time,  and  that  all  the  building 
materials  furnished  at  such  time  had  been  fully  paid  for. 

3.  That  even  if  the  written  instrument  was  a  binding  contract 
without  said  notice,  and  even  if  the  guaranty  contained  in  the 
written  instrument  was  a  continuing  one,  still,  that  the  plaintiffs 
never  gave  to  the  defendants  Platter,  Troup  and  Curns,  any 
notice  of  the  advances  made  to  Wilkinson  of  any  such  building 
materials,  and  therefore  that  they  were  released  from  all  obliga- 
tion on  their  guaranty. 

4.  That  under  said  written  instrument  the  plaintiffs  had  no 
authority  to  ever  permit  Wilkinson's  credit  to  exceed  the  sum 
of  two  thousand  dollars,  and  that  the  plaintiffs,  by  permitting 
such  credit  to  exceed  that  sum,  released  the  defendants  Platter, 
Troup  and  Curns,  who  were  only  sureties. 

5.  That  the  plaintiffs  never  gave  the   defendants  Platter, 
Troup  and  Curns,  any  reasonable  notice  of  any  default  in  pay- 
ment made  by  said  Wilkinson,  and  therefore,  for  that  reason 
also,  they  were  released  from  their  guaranty. 

It  will  be  seen  that  the  decision  of  this  case  can  amount  to  but 
little  more  than  merely  a  construction  or  interpretation  of  the 
written  guaranty  of  the  defendants  Platter,  Troup  and  Curns. 
What  does  the  guaranty  mean?  It  may  properly  be  divided 
into  three  parts:  first,  the  grant  of  authority  to  the  Chicago 
Lumber  Company  to  furnish  the  materials;  second,  the  limit  in 
the  amount  of  the  value  of  materials  to  be  furnished ;  third,  the 
terms  and  conditions  of  payment.  The  guaranty  will  then  read 
thus : 

1.    "We  hereby  authorize  the  Chicago  Lumber  Company,  of 


PLATTER  v.  GREEN.  155 

"Wichita,  Kansas,  to  furnish  to  T.  A.  Wilkinson  such  building 
materials  as  he  may  wish, 

2.  "Not  exceeding  the  value  of  two  thousand  dollars  at  once ; 

3.  "And  if  the  said  T.  A.  Wilkinson  shall  fail  to  pay  for 
the  same,  either  in  money  or  materials  received  from  the  said 
Chicago  Lumber  Company,  then  upon  ninety  days'  notice  we 
agree  to  pay  to  the  Chicago  Lumber '  Company  the  amount  re- 
maining due  from  T.  A.  Wilkinson  to  the  Chicago  Lumber  Com- 
pany." 

We  shall  examine  the  above  claims  of  error  in  the  order  above 
mentioned. 

1.  We  think  that  the  written  instrument  sued  on  was,  in  one 
sense,  only  a  proposition  or  offer  to  guarantee  payment  for  the 
value  of  the  building  materials  to  be  furnished  by  the  plaintiffs 
below  to  Wilkinson ;  but  not  in  the  sense  as  claimed  by  the  de- 
fendants below.  The  guaranty  did  not  depend  for  its  force 
and  validity  upon  any  notice  subsequently  to  be  given  by  tha 
plaintiffs  to  the  defendants,  but  depended  solely  upon  the  fact 
of  the  plaintiffs  accepting  the  security  furnished  by  the  written 
guaranty,  and  delivering  the  building  materials  under  it.  It 
was  evidently  intended  by  the  parties  that  the  guaranty  should 
be  complete  and  absolute,  without  any  such  notice.  The  guar- 
anty reads:  "We  hereby  (that  is,  by  this  instrument,  and  with- 
out requiring  a  subsequent  notice)  authorize  (that  is,  now  au- 
thorize, using  the  word  in  the  present  tense)  the  Chicago  Lum- 
ber Company,  of  Wichita,  Kansas,  to  furnish  to  T.  A.  Wilkin- 
son such  building  materials,  upon  ninety  days'  notice  being 
given  of  the  amount  due  for  such  building  materials."  It  will 
therefore  be  seen  that  the  question  of  notice  was  considered  by 

the  parties,  and  the  only  notice  mentioned  in  the  contract  was  the 

one  with  regard  to  payment  for  the  materials  furnished.    If  any 

•••     ••"  «^l       •"  *     ~  T  II—  ___  ^*l-m- 

other  notice  had  been  desired  by  the  defendants,  they  would  un- 
doubtedly have  provided  for  it  in  their  written,  guaranty.  After 
providing  for  one  notice  in  their  written  guaranty,  it  can  hardly 
be  supposed  that  they  intended  that  some  other  notice  should 
also  be  given  to  them,  and  one  which  they  did  not  mention  in 
their  written  guaranty. 

We  think  the  guaranty  was  complete  and  absolute  as  soon  as 
it  was  accepted  by  the  plaintiffs,  without  any  notice  of  such 
acceptance  being  given  to  the  defendants.  We  are  aware  that 


156  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

there  is  a  great  conflict  among  the  authorities  with  regard  to 
guaranties  of  a  similar  character  to  this.  See  Farmers  &c.  Bank 
v.  Kercheval,  2  Mich.  504 ;  Powers  v.  Bumcratz,  12  Ohio  St.  273 ; 
Douglas  v.  Rowland,  24  Wend.  35 ;  March  v.  Putney,  56  N.  H. 
34 ;  1  Parsons  on  Contract,  479 ;  Wade  on  Notice,  §  388,  et  seq., 
also  §  404. 

It  is  also  claimed  that  the  guaranty  was  not  a  continuing  one, 
but  was  so  limited  that  building  materials  could  be  furnished 
only  at  one  time.  This,  we  think,  is  an  erroneous  interpretation 
of  the  contract.  The  contract  says:  "We  hereby  authorize  the 
Chicago  Lumber  Company  of  Wichita,  Kansas,  to  furnish  to  T. 
A.  Wilkinson  such  building  materials  as  he  may  wish."  This  is 
an  authority  to  furnish  building  materials  without  any  limit  as 
to  time,  amount,  or  value.  The  defendants,  however,  after  giv- 
ing this  unlimited  authority,  then  limit  the  same  by  using  the 
words  "not  exceeding  the  value  of  two  thousand  dollars  at 
once." 

Wilkinson  was  a  retail  dealer  in  building  materials  at  Win- 
field,  and  the  Chicago  Lumber  Company  was  a  wholesale  dealer 
in  building  materials  at  Wichita;  and  Wilkinson,  desiring  to 
purchase  building  materials  of  the  Chicago  Lumber  Company  on 
credit,  to  enable  him  to  carry  on  his  business  at  Winfield,  pro- 
cured this  guaranty  from  the  defendants,  in  order  to  obtain  such 
building  materials  as  he  might  want  for  his  business;  and  evi- 
dently the  defendants,  contemplating  that  the  Chicago  Lumber 
Company  would  furnish  to  Wilkinson  building  materials  at 
various  times,  inserted  the  limitation  that  they  might  furnish 
such  building  materials  as  he  might  wish,  but  "not  exceeding 
the  value  of  two  thousand  dollars  at  once, ' '  the  words  ' '  at  once ' ' 
evidently  meaning  "at  one  and  the  same  time." 

We  think  this  limitation,  fairly  construed,  .would  prevent  the 
Chicago  Lumber  Company  from  furnishing  to  T.  A.  Wilkinson 
on  the  credit  of  the  defendants  building  materials  to  an  amount 
exceeding  at  any  one  time  the  value  of  two  thousand  dollars; 
and  this  whether  the  building  materials  were  procured  at  only 
one  time  or  at  several  times.  But  we  d<|  not  think  that  this  limita- 
tion confines  the  parties  to  one  transaction  alone.  There  is  also 
a  great  conflict  among  the  authorities  upon  the  question  of  con- 
tinuing and  limited  guaranties,  some  authorities  holding  one 
way,  and  some  another ;  but  we  think  under  the  language  of  the 


PLATTER  v.  GREEN.  157 

present  guaranty,  there  is  not  much  room  for  any  interpretation 
other  than  that  above  indicated.  We  would  refer  to  the  follow- 
ing authorities,  among  others:  Gates  v.  McKee,  13  N.  Y.  232; 
Hinge  v.  Judson,  24  N.  Y.  64;  Brandt  on  Suretyship  and  Guar- 
anty, §  130,  et  seq. 

If  the  said  written  instrument  was  a  binding  contract  with- 
out notice  of  the  acceptance  of  the  guaranty,  and  if  the  guaranty 
was  a  continuing  one,  then  no  notice  was  required  to  be  given  to 
the  defendants,  except  the  one  provided  for  in  the  written  instru- 
ment, and  except  such  as  was  necessary  to  enable  them  to  avoid 
any  loss  that  might  occur  on  account  of  the  insolvency  of  Wil- 
kinson. We  think  this  principle  is  so  well  settled  that  it  will 
need  no  further  consideration;  and  as  it  is  not  shown  that  the 
defendants  have  suffered  any  loss  on  account  of  failure  to  give 
such  notice,  we  do  not  think  that  this  point  is  well  taken. 

II.  We  do  not  think  that  it  was  intended  by  the  written  in- 
strument to  prevent  Wilkinson  from  purchasing  more  than  two 
thousand  dollars'  worth  of  building  materials  from  the  Chicago 
Lumber  Company,  or  to  prevent  him  from  becoming  indebted  to 
said  company  in  the  sum  of  more  than  two  thousand  dollars; 
but  it  was  simply  intended  to  prevent  him  from  purchasing,  at 
any  one  time,  more  than  two  thousand  dollars '  worth  of  building 
materials  on  the  credit  of  the  defendants,  Platter,  Troup,  and 
Curns,  and  from  creating  any  liabilty  against  them  at  any  one 
time  for  more  than  that  amount.     The  limitation  contained  in 
the  written  guaranty  we  think  was  simply  intended  as  a  limita- 
tion upon  the  liability  of  the  defendants  Platter,  Troup,  and 
Curns,  confining  such  liability  to  $2,000.     We  therefore  think 
that  this  point  is  not  well  taken. 

III.  The  plaintiffs  gave  to  the  defendants  Platter,  Troup, 
and  Curns,  the  notice  that  was  provided  for  in  the  written  guar- 
anty ;  and  we  think  that  that  was  sufficient. 

Taking  the  whole  case  together,  we  perceive  no  error,  and  the 
judgment  of  the  court  below  will  be  affirmed. 
All  the  Justices  concurring. 


158  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

NADING  v.  M'GREGOR.    1890. 
121  Ind.  465 j  23  N.  E.  Rep.  283. 

COFFEY,  J.  On  the  30th  day  of  July,  1885,  the  appellee  ex- 
ecuted the  following  instrument  of  writing,  viz. :  ' '  Office  ,of  J. 
A.  McGregor,  manufacturer  and  dealer  in  oil  barrel  staves.  Co- 
lumbus, Ind.,  July  30th,  1885.  Mr.  Nading,  Esq.,  Hope,  In- 
diana— Dear  Sir:  I  have  made  a  contract  with  Stephen  A. 
Douglass  for  a  lot  of  staves  to  be  delivered  at  Hope,  Ind.  Any 
white  or  burr  oak  timber  you  may  sell  him  I  will  stand  good^ 
for,  or,  in  other  words  will  guaranty  the  pay  for  it.  Yours 
truly,  J.  A.  McGregor."  The  appellant  filed  a  complaint  in 
the  Bartholomew  circuit  court  consisting  of  two  paragraphs, 
each  of  which  is  based  upon  the  above  instrument  of  writing. 
The  first  paragraph  alleges  the  execution  of  said  writing  by  the 
appellee  upon  the  consideration  that  the  appellant  would  sell 
certain  white  oak  and  burr  oak  timber  to  Stephen  A.  Douglass ; 
that  the  appellant  accepted  the  promise  therein  contained,  and 
on  the  faith  thereof  sold  to  the  said  Douglass  certain  white  oak 
and  burr  oak  timber  .at  prices  agreed  upon  between  him  and  the 
said  Douglass,  amounting  to  $500,  a  bill  of  particulars  of  which 
is  filed  with  the  complaint;  that,  although  often  requested  so  to 
do,  the  appellee  fails  and  refuses  to  pay  for  the  same  and  that 
the  said  sum  is  due  and  unpaid.  The  second  paragraph  alleges 
that,  in  consideration  that  appellant  would  sell  and  deliver  to 
Stephen  A.  Douglass  certain  white  oak  and  burr  oak  timber,  the 
appellee  guaranteed  and  promised  the  appellant,  by  the  writing- 
above  set  out,  that  he  would  be  answerable  for  and  stand  good  for 
the  payment  for  said  timber  at  the  prices  agreed  upon  between 
the  appellant  and  the  said  Douglass ;  that  he  sold  timber  to  said 
Douglass  at  an  agreed  price  of  $500  on  the  faith  of  said  guar- 
anty ;  that  the  said  Douglass  has  not  paid  for  the  same,  although 
often  requested  so  to  do,  nor  has  the  appellee  paid  for  the  same, 
though  often  demanded  and  requested  so  to  do,  and  that  the  said 
sum  is  due  and  unpaid.  To  this  complaint  the  appellee  filed  an 
answer,  consisting  of  one  paragraph,  in  which  after  admitting  the 
above  writing,  he  avers  that  immediately  after  the  delivery  of  the 
same  to  the  appellant,  without  any  notice  to  the  appellee  of  its 
acceptance,  the  appellant  sold  and  delivered  to  the  said  Stephen 


NADING  v.  MCGREGOR.  159 

A.  Douglass  the  staves  and  timber  mentioned  in  the  complaint, 
under  and  in  pursuance  of  a  contract  made  between  said  appel- 
lant and  the  said  Douglass,  which  said  contract  is  in  the  words 
and  figures  following,  to- wit:  "Hope,  Indiana,  August  3rd,  y 
1885.  This  is  to  certify  that  I,  this  third  day  of  August,  1885, 
have  sold  to  Stephen  A.  Douglass  white  oak  and  burr  oak  lum- 
ber enough  for  one  hundred  thousand  (100,000)  first  class  oil  ,--» 
barrel  staves,  for  which  the  said  Stephen  A.  Douglass  agrees  to 
pay  $10.00  per  thousand  in  the  tree,  and  the  said  staves  to  be 
paid  for  when  gotten  out  and  delivered  at  Hope,  Indiana;  and 
pay-day  shall  be  on  Saturday.  I  shall  have  my  choice  of  taking 
stave  count  or  log  measure  for  logs  in  Hitchcock's  mill-yard. 
Simon  Nading. ' '  That  he  never  received  any  answer  from  said 
written  proposition  of  guaranty  mentioned  in  appellant's  com- 
plaint, and  did  not  know  that  the  appellant  had  accepted  the 
same  or  was  relying  thereon,  until  the  30th  day  of  December, 
1885,  when  appellant  sent  appellee  a  statement  of  the  account 
between  appellant  and  the  said  Douglass  and  demanded  payment 
of  the  same;  that  at  the  time  of  said  notice  and  demand  said 
Douglass  had  sold  all  of  said  staves  and  timber,  and  had  received 
the  pay  therefor,  and  was  wholly  insolvent  and  financially  worth- 
less, and  soon  thereafter  removed  from  Bartholomew  county, 
and  his  place  of  residence  is  now  unknown ;  that  if  appellant  had 
notified  appellee  of  his  acceptance  of  said  guaranty  within  a 
reasonable  time,  appellee  could  have  secured  himself;  that  he 
did  not  know,  and  had  no  notice  whatever,  of  appellant's  inten- 
tion to  hold  him  upon  said  proposition  of  guaranty  until  the 
aforementioned  time;  that  said  Douglass  was  and  still  is  in- 
debted to  the  appellee  and  he  has  no  means  of  securing  the  same, 
or  the  appellant's  claim.  The  court  overruled  a  demurrer  to 
this  answer,  to  which  the  appellant  excepted. 

The  appellant  filed  a  reply  in  two  paragraphs.  The  first 
paragraph  consists  of  a  mere  repetition  of  the  allegations  con- 
tained in  the  complaint.  It  is  alleged  in  the  second  paragraph 
that  on  the  30th  day  of  July,  1885,  the  appellee  had  contracted 
with  said  Douglass  for  the  purchase  of  100,000  staves  to  be  de- 
livered at  Hope,  Ind. ;  that  at  that  time  said  Douglass  had  no 
staves  with  which  to  fill  said  contract,  and  was  wholly  dependent 
upon  appellant  and  others  to  sell  him  timber  with  which  to  fill 
his  contract  with  appellee;  that  said  Douglass  was  wholly  insol- 


160  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

vent,  as  was  well  known  to  both  appellant  and  appellee ;  that  on 
account  of  such  insolvency  appellant  refused  to  sell  him  timber ; 
that  appellee  was  pecuniarily  interested  in  said  contract  and  in 
the  purchase  of  said  timber  by  the  said  Douglass;  that  when 
manufactured  into  staves  the  same  was  to  be  delivered  to  the 
appellee,  under  his  said  contract  with  the  said  Douglass;  that 
appellee,  for  the  sole  purpose  of  receiving  the  benefit  of  his 
said  contract  with  the  said  Douglass,  and  for  the  purpose  of 
procuring  the  staves  contracted  to  be  sold  by  the  said  Douglass 
to  him,  as  aforesaid,  made  and  delivered  to  the  appellant  the 
writing  set  out  and  filed  with  the  complaint ;  that  relying  on  the 
promises  therein  contained,  he  delivered  to  the  said  Douglass 
a  large  amount  of  oak  timber  to-wit,  enough  to  make  75,000 
staves  of  the  value  of  $500  all  of  which  was  received  by  the 
appellant;  that  said  Douglass  was  wholly  insolvent,  and  failed  to 
pay  for  the  same,  and  that  appellee  fails  and  refuses  to  pay  for 
the  same.  The  court  sustained  a  demurrer  to  each  paragraph  of 
said  reply,  and  the  appellant  excepted.  On  leave  given,  the 
appellant  filed  a  third  paragraph  of  complaint,  which  contains 
substantially  the  same  -allegations  as  those  contained  in  the  sec- 
ond paragraph  of  the  reply  above  set  out.  The  appellee  extend- 
ing the  answer  above  set  forth  so  as  to  cover  this  third  para- 
graph of  the  complaint,  the  court  again  overruled  a  demurrer 
thereto,  and,  refusing  to  plead  further,  the  appellee  had  judg- 
ment for  costs.  The  assignment  of  errors  calls  in  question  the 
above  several  rulings  of  the  court. 

It  is  earnestly  contended  by  the  appellant  that  the  instrument 
above  set  out  dated  July  30,  1885,  is  not  a  strict  guaranty,  but 
constitutes  an  original  undertaking  on  the  part  of  the  appellee 
to  pay  for  any  white  or  burr  oak  timber  purchased  by  Douglass 
from  the  appellant,  and  that,  as  it  is  an  original  undertaking  on 
the  part  of  the  appellee  no  notice  either  of  its  acceptance,  or  of  the 
failure  of  Douglass  to  pay,  was  necessary  in  order  to  bind  the 
appellee.  On  the  other  hand,  it  is  contended  with  equal  earnest- 
ness on  the  part  of  the  appellee  that  said  instrument  of  writing 
amounts  to  nothing  more  than  a  mere  proposition  to  guaranty 
the  payment  for  timber  purchased  by  Douglass,  and  that  it  was 
not  binding  on  the  appellee  until  notice  of  its  acceptance,  and 
that  in  any  event,  to  bind  the  appellee,  the  appellant  should  have 
notified  him  within  a  reasonable  time  that  he  had  sold  Douglass 


NADING  v.  MCGREGOR.  161 

the  timber  and  that  he  (Douglass)  had  failed  to  pay  for  it,  to 
the  end  that  the  appellee  might  secure  himself  against  loss. 

It  is  often  a  question  of  very  great  difficulty  to  determine 
whether  a  particular  instrument  of  writing  constitutes  a  strict 
guaranty,  or  whether  it  constitutes  an  original  undertaking.  In 
a  strict  guaranty  the  guarantor  does  not  undertake  to  do  the 
thing  which  his  principal  is  bound  to  do,  but  his  obligation  is 
that  the  principal  shall  perform  such  act  as  he  is  bound  to  per- 
form, or,  in  the  event  he  fails,  that  the  guarantor  will  pay  such 
damages  as  may  result  from  such  failure.  It  is  this  feature 
which  enables  us  to  distinguish  a  strict  or  collateral  guaranty 
from  a  direct  undertaking  or  promise  so  that  when  an  instru- 
ment of  writing  resolves  itself  into  a  promise  or  undertaking  on 
the  part  of  the  person  executing  it  to  do  a  particular  thing 
which  another  is  bound  to  do,  in  the  event  such  other  person 
does  not  perform  the  act  himself,  Jt  isjsaid  to  be  an  original 
undertaking,  and  not  a  strict  or  collateral  guaranty.  In  the  lat- 
ter class  of  contracts  the  undertaking  is  in  the  nature  of  a 
surety,  and  the  person  bound  by  it  must  take  notice  of  the  de- 
fault of  his  principal.  Manufacturing  Co.  v.  Black,  111  Ind. 
308,  12  N.  E.  Rep.  504;  Wright  v.  Griffith,  ante  281  (at  this 
term) ;  Ward  v.  Wilson,  100  Ind.  52;  La  Rose  v.  Bank,  102  Ind. 
332,  I.  N.  E.  Rep.  805 ;  Reigart  v.  White,  52  Pa.  St.  438 ;  Woods 
v.  Sherman,  71  Pa.  St.  100;  Riddle  v.  Thompson,  104  Pa.  St.  330. 

The  undertaking  of  the  appellee  in  this  case  is  not  a  strict  or 
collateral  guaranty  but  is  a  direct,  absolute,  and  original  promise 
to  pay  the  appellee  for  any  white  or  burr  oak  timber  he  might 
sell  to  Stephen  A.  Douglass.  Frash  v.  Polk,  67  Ind.  55 ;  Kline 
v.  Raymond,  70  Ind.  271 ;  Burnham  v.  Gallentine,  11  Ind.  295 ; 
Kirby  v.  Studebaker,  15  Ind.  45;  Watson  v.  Beabout,  18  Ind. 
281 ;  Ward  v.  Wilson,  100  Ind.  52.  By  delivering  such  instru- 
ment to  Douglass,  the  appellee  made  him  his  agent  to  deliver 
it  to  the  appellant.  In  such  cases  its  acceptance,  and  perform- 
ance of  the  conditions  upon  which  it  rests,  are  all  that  is  neces- 
sary to  make  the  contract  complete  and  enforceable.  Davis  v. 
Wells,  104  U.  S.  159;  Wills  v.  Ross,  77  Ind.  1;  Kline  v.  Ray- 
mond, 70  Ind.  271;  Cooke  v.  Orne,  37  111.  186.  This  contract 
not  being  a  collateral  guaranty  but  an  original  undertaking  in 
the  nature  of  a  surety,  in  which  appellee  bound  himself  to  pay 
for  the  timber,  he  was  not  entitled  to  notice,  either  of  its  accept- 
11 


162  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

ance,  or  of  the'  failure  of  Douglass  to  pay.  If  he  had  desired 
such  notice,  he  should  have  stipulated  for  it  in  his  contract. 
Smith  v.  Dann,  6  Hill,  543. 

It  follows  from  what  we  have  said  that  the  court  erred  in 
overruling  the  demurrer  to  the  answer  of  the  appellee.  Judg- 
ment reversed,  with  instructions  to  the  circuit  court  to  sustain 
the  demurrer  to  the  appellee's  answer,  and  for  further  proceed- 
ings not  inconsistent  with  this  opinion. 


DAVIS  v.  WELLS.    1881. 
104  U.  8.  159;  26  Law.  Ed.  686. 

Error  to  the  Supreme  Court  of  the  Territory  of  Utah. 
The  facts  are  stated  in  the  opinion  of  the  court. 
Mr.  Justice  MATTHEWS  delivered  the  opinion  of  the  court. 
The  action  below  was  brought  by  "Wells,  Fargo  &  Co.,  against 
the  plaintiffs  in  error,  upon  a  guaranty,  in  the  following  words : 

"For  and  in  consideration  of  one  dollar  to  us  in  hand  paid 
by  Wells,  Fargo  &  Co.  (the  receipt  of  which  is  hereby  acknowl- 
edged), we  hereby  guarantee  unto  them,  the  said  Wells,  Fargo 
&  Co.  unconditionally,  at  all  times,  any  indebtedness  of  Gordon 
&  Co.  a  firm  now  doing  business  at  Salt  Lake  City,  Territory  of 
Utah,  to  the  extent  of  and  not  exceeding  the  sum  of  ten  thousand 
dollars  ($10,000)  for  any  overdrafts  now  made,  or  that  may 
hereafter  be  made  at  the  bank  of  said  Wells,  Fargo  &  Co. 

' '  This  guaranty  to  be  an  open  one,  and  to  continue  one  at  all 
times  to  the  amount  of  ten  thousand  dollars,  until  revoked  by  us 
in  writing. 

"Dated,  Salt  Lake  City,  llth  November,  1874. 

' '  In  witness  whereof  we  have  hereunto  set  our  hands  and  seals 
.the  day  and  year  above  written. 

"ERWIN  DAVIS.  (SEAL.) 

"J.  N.  H.  PATRICK.     (SEAL.) 

"Witness:    J.  GORDON." 

The  answer  set  up,  by  way  of  defence,  that  there  was  no 
notice  to  the  defendants  from  the  plaintiffs  of  their  acceptance 
of  the  guaranty,  and  their  intention  to  act  under  it;  and  no 
notice  after  the  account  was  closed,  of  the  amount  due  thereon ; 
and  no  notice  of  the  demand  of  payment  upon  Gordon  &  Co,, 


DAVIS  v.  WELLS.  163 

and  of  their  failure  to  pay  within  a  reasonable  time  thereafter, 
there  was  no  allegation  that  by  reason  thereof  any  loss  or 
V-damage  had  accrued  to  the  defendants. 

On  the  trial  it  was  in  evidence,  that  this  guaranty  was  executed 
by  the  defendants  below,  and  delivered  to  Gordon  on  the  day 
of  its  date,  for  delivery  by  him  to  Wells,  Fargo  &  Co.,  which 
took  place  on  the  same  day ;  that  Gordon  &  Co.  were  then  indebted 
to  the  plaintiffs  below  for  a  balance  of  over  $9,000  on  their 
bank  account;  that  their  account  continued  to  be  overdrawn, 
"Wells,  Fargo  &  Co.  permitting  it  on  the  faith  of  the  guaranty, 
from  that  time  till  July  31,  1875,  when  it  was  closed,  with  a 
debit  balance  of  $6,200 ;  that  the  account  was  stated  and  payment 
demanded  at  that  time  of  Gordon  &  Co.,  who  failed  to  make  pay- 
ment; that  a  formal  notice  of  the  amount  due  and  demand  of 
payment  was  made  by  "Wells,  Fargo  &  Co.,  of  the  defendants 
below,  on  May  26,  1876,  the  day  before  the  action  was  brought. 
There  was  no  evidence  of  any  other  notice  having  been  given 
in  reference  to  it;  either  that  Wells,  Fargo  &  Co.  accepted  it 
and  intended  to  rely  upon  it,  or  of  the  amount  of  the  balance 
due  at  or  after  the  account  was  closed,  and  no  evidence  was  of- 
fered of  any  loss  or  damage  to  the  defendants  by  reason  thereof, 
or  in  consequence  of  the  delay  in  giving  the  final  notice  of  Gor- 
don &  Co.'s  default. 

The  defendants'  counsel  requested  the  court,  among  others 
not  necessary  to  refer  to,  to  give  to  the  jury  the  following 
instructions,  numbered  first,  second,  third  and  fifth : — 

1.  If  the  jury  believes  from  the  evidence  that  the  guaranty 
sued  upon  was  delivered  by  the  defendants  to  Joseph  Gordon, 
and  not  to  the  plaintiff,  but  was  afterwards  delivered  to  the  latter 
by  Joseph  Gordon,  or  by  Gordon  &  Co.,  it  became  and  was  the 
duty  of  Wells,  Fargo  &  Co.  thereupon  to  notify  the  defendants 
of  the  acceptance  of  said  guaranty,  and  their  intention  to  make 
advancements  on  the  faith  of  it ;  and,  if  they  neglected  or  failed 
so  to  do,  the  defendants  are  not  liable  on  the  guaranty,  and  your 
verdict  must  be  for  the  defendants. 

2.  If  Wells,  Fargo  &  Co.  made  any  advancements  to  Gordon 
&  Co.  on  overdrafts  on  the  faith  of  said  guaranty,  it  became 
and  was  the  duty  of  plaintiff  to  notify  the  defendants,  within  a 
reasonable   time  after  the   last  of  said   advancements  of  the 
amount  advanced  under  the  guaranty,  and  if  the  plaintiff  failed 


164  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

or  neglected  so  to  do,  it  cannot  recover  under  the  guaranty,  and 
your  verdict  must  be  for  the  defendants. 

3.  "What  is  a  reasonable  time  in  which  notice  should  be  given 
is  a  question  of  law  for  the  court.  Whether  notice  was  given 
is  one  of  fact  for  the  jury.  The  court,  therefore,  instructs  you 
that  if  notice  of  the  advancements  made  under  said  guaranty 
was  not  given  until  after  the  lapse  of  twelve  months  or  upward 
from  the  time  the  last  advancement  was  made  to  Gordon  &  Co., 
this  was  not  in  contemplation  of  law  a  reasonable  notice,  and 
your  verdict,  if  you  so  find  the  fact  to  be,  should  be  for  the  de- 
fendants. 

5.  Before  any  right  of  action  accrued  in  favor  of  plaintiff 
under  said  guaranty  it  was  incumbent  on  it  to  demand  payment 
of  the  principal  debtor,  Gordon  &  Co.,  and  on  their  refusal  to 
pay,  to  notify  the  defendants.  If  the  jury,  therefore,  find  that 
no  such  demand  was  made  and  no  notice  given  to  the  defend- 
ants the  plaintiff  cannot  recover  upon  the  guaranty. 

The  court  refused  to  give  each  of  these  instructions,  and  the 
defendants  excepted. 

The  following  instructions  were  given  by  the  court  to  the 
jury,  to  the  giving  of  each  of  which  the  defendants  excepted: 

1.  You  are  instructed  that  the  written  guaranty  offered  in 
evidence  in  this  case  is  an  unconditional  guaranty  by  defend- 
ants, of  any  and  all  overdrafts,  not  exceeding  in  amount  $10,000, 
for  which  said  Gordon  &  Co.  were  indebted  to  the  plaintiff  at 
the  date  of  the  commencement  of  this  suit.     If  the  jury  believe 
from  the  evidence  that  said  guaranty  was  by  said  defendants,  or 
by  any  one  authorized  by  them  to  deliver  the  same,  actually  de- 
livered to  plaintiff,  and  that  plaintiff  accepted  and  acted  on 
the  same,  such  delivery,  acceptance,  and  action  thereon  by  plain- 
tiff bind  the  defendants  and  render  the  defendants  responsible 
in  the  action  for  all  overdrafts  upon  plaintiff  made  by  Gordon 
&  Co.  at  the  date  of  said  delivery  of  said  guaranty,  and  since, 
and  which  were  unpaid  at  the  date  of  the  commencement  of  this 
suit,  not  exceeding  $10,000. 

2.  The  jury  are  instructed  that  the  written  document  under 
seal,  offered  in  evidence  in  this  case,  implies  a  consideration, 
and  constitutes  an  unconditional  guaranty  of  whatever  over- 
draft, if  any,  not  exceeding  $10,000,  which  the  jury  may  find 
from  the  evidence  that  Gordon  &  Co.  actually  owed  the  plaintiff 
at  the  date  of  the  bringing  of  this  suit;  and,  further,  if  you 


DAVIS  v.  WELLS.  163 

believe  from  the  evidence  that  an  account  was  stated  of  such 
overdraft  between  plaintiff  and  J.  Gordon  &  Co.,  then  the  plain- 
tiff is  entitled  to  interest  on  the  amount  found  due  at  such  state- 
ment, from  the  date  thereof,  at  the  rate  of  ten  per  cent  per 
annum. 

These  exceptions  form  the  basis  of  the  assignment  of  errors. 

The  charge  of  the  court  first  assigned  for  error,  and  its  refusal 
to  charge  upon  the  point  as  requested  by  the  plaintiffs  in  error, 
raise  the  question  whether  the  guaranty  becomes  operative  if 
the  guarantor  be  not,  within  a  reasonable  time,  informed  by  the 
guarantee  of  his  acceptance  of  it  and  intention  to  act  under  it. 

It  is  claimed  in  argument  that  this  has  been  settled  in  the 
negative  by  a  series  of  well-considered  judgments  of  this  court. 

It  becomes  necessary  to  inquire  precisely  what  has  been  thus 
settled  and  what  rule  of  decision  is  applicable  to  the  facts  of 
the  present  case. 

In  Adams  v.  'Jones  (12  Pet.  207,  213),  Mr.  Justice  STORY, 
delivering  the  opinion  of  the  court,  said:  "And  the  question 
which  under  this  view,  is  presented,  is  whether,  upon  a  letter  of 
guaranty  addressed  to  a  particular  person  or  to  persons  gener- 
ally for  a  future  credit  to  be  given  to  the  party  in  whose  favor 
the  guaranty  is  drawn,  notice  is  necessary  to  be  given  to  the 
guarantor  that  the  person  giving  the  credit  has  accepted  or 
acted  upon  the  guaranty  and  given  the  credit  on  the  faith  of  it. 
We  are  all  of  the  opinion  that  it  is  necessary;  and  this  is  not 
now  an  open  question  in  this  court,  after  the  decisions  which 
have  been  made  in  Russell  v.  Clarke,  7  Cranch,  69 ;  Edmonston 
v.  Drake,  5  Peters'  Rep.  624;  Douglass  v.  Reynolds  7,  Peters' 
Rep.  113;  Lee  v.  Dick,  10  Peters,  482;  and  again  recognized  at 
the  present  term  in  the  case  of  Reynolds  v.  Douglass.  It  is  in 
itself  a  reasonable  rule  enabling  the  guarantor  to  know  the 
nature  and  extent  of  his  liability;  to  exercise  due  vigilance  in 
guarding  himself  against  losses  which  might  otherwise  be  un- 
known to  him ;  and  to  avail  himself  of  the  appropriate  means  in 
law  and  equity  to  compel  the  other  parties  to  discharge  him  from 
further  responsibility.  The  reason  applies  with  still  greater 
force  to  cases  of  a  general  letter  of  guaranty ;  for  it  might  other- 
wise be  impracticable  for  the  guarantor  to  know  to  whom  and 
under  what  circumstances  the  guaranty  attached;  and  to  what 
period  it  might  be  protracted.  Transactions  between  the  other 


166  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

parties  to  a  great  extent  might  from  time  to  time  exist,  in  which 
credits  might  be  given  and  payments  might  be  made,  the  exist- 
ence and  due  appropriation  of  which  might  materially  affect  his 
own  rights  and  security/  If,  therefore,  the  questions  were 
entirely  new,  we  should  not  be  disposed  to  hold  a  different  doc- 
trine ;  and  we  think  the  English  decisions  are  in  entire  conform- 
ity to  our  own." 

In  Reynolds  v.  Douglass  (12  Pet.  497,  504),  decided  at  the  same 
term  and  referred  to  in  the  foregoing  extract,  Mr.  Justice  MC- 
LEAN stated  the  rule  to  be  "that,  to  entitle  the  plaintiffs  to  re- 
cover on  said  letter  of  credit,  they  must  prove  that  notice  had 
been  given  in  a  reasonable  time  after  said  letter  of  credit  had 
been  accepted  by  them  to  the  defendants,  that  the  same  had 
been  accepted ' ' ;  and  he  added :  ' '  This  notice  need  not  be  proved 
to  have  been  given  in  writing  or  in  any  particular  form,  but  may 
be  inferred  by  the  jury  from  facts  and  circumstances  which 
shall  warrant  such  inference." 

There  seems  to  be  some  confusion  as  to  the  reason  and  founda- 
tion of  the  rule,  and  consequently  some  uncertainty  as  to  the  cir- 
cumstances in  which  it  is  applicable.  In  some  instances  it  has 
been  treated  as  a  rule,  inhering  in  the  very  nature  and  definition 
of  every  contract,  which  requires  the  assent  of  a  party  to  whom 
a  proposal  is  made  to  be  signified  to  the  party  making  it  in  order 
to  constitute  a  binding  promise,  in  others  it  has  been  considered 
as  a  rule  springing  from  the  peculiar  nature  of  the  contract  of 
guaranty  which  requires,  after  the  formation  of  the  obligation 
of  the  guarantor,  and  as  one  of  its  incidents,  that  notice  should 
be  given  of  the  intention  of  the  guarantee  to  act  under  it  as  a 
condition  of  the  promise  of  the  guarantor. 

The  former  is  the  sense  in  which  the  rule  is  to  be  understood 
as  having  been  applied  in  the  decisions  of  this  court.  This  ap- 
pears very  plainly  not  only  from  a  particular  consideration  of 
the  cases  themselves,  but  was  formerly  declared  to  be  so  by  Mr. 
Justice  NELSON,  speaking  for  the  court  in  delivering  its  opinion 
in  Louisville  Manufacturing  Co.  v.  Welch  (10  How.  461,  475), 
where  he  uses  this  language:  "He  (the  guarantor)  has  already 
had  notice  of  the  acceptance  of  the  guaranty  and  of  the  inten- 
tion of  the  party  to  act  under  it.  The  rule  requiring  this  notice 
within  reasonable  time  after  the  acceptance  is  absolute  and  im- 
perative in  this  court,  according  to  all  the  cases;  it  is  deemed 


DAVIS  v.  WELLS.  167 

essential  to  an  inception  of  the  contract ;  he  is,  therefore,  advised 
of  his  accruing  liabilities  upon  the  guaranty  and  may  very  well 
anticipate  or  be  charged  with  notice  of  an  amount  of  indebted- 
ness to  the  extent  of  the  credit  pledged." 

And  in  Wildes  v.  Savage  (1  Story  22)  Mr.  Justice  STORY,  who 
had  delivered  the  opinion  in  Douglass  v.  Reynolds  (7  Pet.  ITS), 
after  stating  the  rule  requiring  notice  by  the  guarantee  of  his 
acceptance,  said:  "This  doctrine,  however,  is  inapplicable  to 
the  circumstances  of  the  present  case  for  the  agreement  to  accept 
was  contemporaneous  with  the  guaranty,  and  indeed,  constituted 
the  consideration  and  basis  thereof." 

The  agreement  to  accept  is  a  transaction  between  the  guaran- 
tee and  guarantor,  and  completes  that  mutual  assent  necessary 
to  a  valid  contract  between  them.  It  was,  in  the  case  cited,  the 
consideration  for  the  promise  of  the  guarantor.  And  wherever 
a  sufficient  consideration  of  any  description  passes  directly  be- 
tween them,  it  operates  in  the  same  manner  and  with  like  effect. 
It  establishes  a  privity  between  them  and  creates  an  obligation. 
The  rule  in  question  proceeds  upon  the  ground  that  the  case  in 
which  it  applies  is  an  offer  or  a  proposal  on  the  part  of  the  guar- 
antor, which  does  not  become  effective  and  binding  as  an  obliga- 
tion until  accepted  by  the  party  to  whom  it  is  made ;  that  until 
then  it  is  inchoate  and  incomplete,  and  may  be  withdrawn  by 
the  proposer.  Frequently  the  only  consideration  contemplated 
is  that  the  guarantee  shall  extend  the  credit  and  make  the  ad- 
vances to  the  third  person,  for  whose  performance  of  his  obliga- 
tion, on  that  account,  the  guarantor  undertakes.  But  a  guar- 
anty may  as  well  be  for  an  existing  debt,  or  it  may  be  supported 
by  some  consideration  distinct  from  the  advance  to  the  principal 
debtor,  passing  directly  from  the  guarantee  to  the  guarantor. 
In  the  case  of  the  guaranty  of  an  existing  debt,  such  a  considera- 
tion is  necessary  to  support  the  undertaking  as  a  binding  obliga- 
tion. In  both  these  cases,  no  notice  of  assent,  other  than  the  per- 
formance of  the  consideration,  is  necessary  to  perfect  the  agree- 
ment ;  for  as  Professor  Langdell  has  pointed  out  in  his  Summary 
of  the  Law  of  Contracts  (Langdell's  Cases  on  Contracts,  987), 
"though  the  acceptance  of  an  offer  and  the  performance  of  the 
consideration  are  different  things,  and  though  the  former  does 
not  imply  the  latter,  yet  the  latter  does  necessarily  imply  the 
former;  and  as  the  want  of  either  is  fatal  to  the  promise,  the 


168  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

question  whether  an  offer  has  been  accepted  can  never  in  strict- 
ness become  material  in  those  cases  in  which  a  consideration  is 
necessary ;  and  for  all  practical  purposes  it  may  be  said  that  the 
offer  is  accepted  in  such  cases  by  giving  or  performing  the  con- 
sideration." 

If  the  guaranty  is  made_at  the  request  of  the  guarantee^  it 
then  becomes  the  answer  of  the~guarantorrto  a  proposal  made  to 
him,  and  its  delivery  to  or  for  the  use  of  the  guarantee  com- 
pletes the  communication  between  them  and  constitutes  a  con- 
tract. The  same  result  follows,  as  declared  in  Wildes  v.  Savage 
(supra),  where  the  agreement  to  accept  is  contemporaneous  with 
the  guaranty,  and  constitutes  its  consideration  and  basis.  It 
must  be  so  wherever  there  is  a  valuable  consideration,  other 
than  the  expected  advances  to  be  made  to  the  principal  debtor, 
which,  at  the  time  the  undertaking  is  given,  passes  from  the 
guarantee  to  the  guarantor  and  equally  so  where  the  instrument 
is  in  the  form  of  a  bilateral  contract,  in  which  the  guarantee 
binds  himself  to  make  the  contemplated  advances,  or  which 
otherwise  creates,  by  its  recitals,  a  privity  between  the  guarantee 
and  guarantor;  for  in  each  of  these  cases  the  mutual  assent  of 
the  parties  to  the  obligation  is  either  expressed  or  necessarily 
implied. 

The  view  we  have  taken  of  the  rule  under  consideration,  as 
requiring  notice  of  acceptance  and  of  the  intention  to  act 
under  the  guaranty,  only  when  the  legal  effect  of  the  instru- 
ment  is  that  of  an  offer  jjr  jjroposal?  and  for  the  purpose  of 
completing  its  obligation  as  a  contract,  is  the  one  urged  upon 
us  by  the  learned  counsel  for  the  plaintiff  in  error,  who  says, 
in  his  printed  brief:  "For  the  ground  of  the  doctrine  is  not 
that  the  operation  of  the  writing  is  conditional  upon  notice, 
but  it  is  that  until  it  is  accepted,  and  notice  of  its  acceptance 
given  to  the  guarantor,  there  is  no  contract  between  the  guar- 
antor and  the  guarantee;  the  reason  being  that  the  writing  is 
merely  an  offer  to  guarantee  the  debt  of  another,  and  it  must 
be  accepted  and  notice  thereof  given  to  the  party  offering  him- 
self as  security  before  the  minds  meet  and  he  becomes  bound. 
Until  the  notice  is  given,  there  is  a  want  of  mutuality;  the 
case  is  not  that  of  an  obligation  on  condition,  but  of  an  offer 
to  become  bound  not  accepted ;  that  is,  there  is  not  a  conditional 
contract,  but  no  contract  whatever." 


DAVIS  v.  WELLS.  169 

It  is  thence  argued  that  the  words  in  the  instrument  which 
is  the  foundation  of  the  present  action — "we  hereby  guarantee 
unto  them,  the  said  Wells,  Fargo  &  Co.,  unconditionally  at  all 
times,"  etc. — cannot  have  the  effect  of  waiving  the  notice  of  ac- 
ceptance, because  they  can  have  no  effect  at  all  except  as  the 
words  of  a  contract,  and  there  can  be  no  contract  without  no- 
tice of  acceptance.  And  on  the  supposition  that  the  terms  of 
the  instrument  constitute  a  mere  offer  to  guarantee  the  debt 
of  Gordon  &  Co.,  we  accept  the  conclusion  as  entirely  just. 

But  we  are  unable  to  agree  to  that  supposition.  We  think 
that  the  instrument  sued  on  is  not  a  mere  unaccepted  proposal. 
It  carries  upon  its  face  conclusive  evidence  that  it  had  been 
accepted  by  Wells,  Fargo  &  Co.,  and  that  it  was  understood 
and  intended  to  be,  on  delivery  to  them,  as  it  took  place,  a 
complete  and  perfect  obligation  of  guaranty.  That  evidence 
we  find  in  the  words,  "for  and  in  consideration  of  one  dollar 
to  us  paid  by  Wells,  Fargo  &  Co.,  the  receipt  of  which  is 
hereby  acknowledged,  we  hereby  guarantee,"  etc.  How  can 
that  recital  be  true,  unless  the  covenant  of  guaranty  had  been 
made  with  the  assent  of  Wells,  Fargo  &  Co.,  communicated 
to  the  guarantors?  Wells,  Fargo  &  Co.  had  not  only  as- 
sented to  it,  but  had  paid  value  for  it,  and  that  into  the  very 
hands  of  the  guarantors,  as  they  by  the  instrument  itself 
acknowledge. 

It  is  not  material  that  the  expressed  consideral^ 
inaLThat  point  was  made,  as  to  a  guarantee,  substantially  the 
"same  as  this,  in  the  case  of  Lawrence  v.  McCalmont  (2  How. 
426,  452),  and  was  overruled.  Mr.  Justice  STORY  said:  "The 
guarantor  acknowledged  the  receipt  of  the  one  dollar,  and  is 
now  estopped  to  deny  it.  If  she  has  not  received  it,  she  would 
now  be  entitled  to  recover  it.  A  valuable  consideration,  how- 
ever small  or  nominal,  if  given  or  stipulated  for  in  good  faith, 
is,  in  the  absence  of  fraud,  sufficient  to  support  an  action  on 
any  parol  contract;  and  this  is  equally  true  as  to  contracts 
of  guaranty  as  to  other  contracts.  A  stipulation  in  consid- 
eration of  one  dollar  is  just  as  effectual  and  valuable  a  con- 
sideration as  a  larger  sum  stipulated  for  or  paid.  The  very 
point  arose  in  Dutchman  v.  Tooth  (5  Bingham's  New  Cases, 
577),  where  the  guarantor  gave  a  guaranty  for  the  payment 
of  the  proceeds  of  the  goods  the  guarantee  had  consigned  to 


170  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

his  brother,  and  also  all  future  shipments  the  guarantee  might 
make  in  consideration  of  two  shillings  and  sixpence  paid  him, 
the  guarantor.  And  the  court  held  the  guaranty  good,  and 
the  consideration  sufficient. " 

It  is  worthy  of  note  that  in  the  case  from  which  this  ex- 
tract is  taken  the  guaranty  was  substantially  the  same  as  that 
in  the  present  case,  and  that  no  question  was  made  as  to  a 
notice  of  acceptance.  It  seems  to  have  been  treated  as  a  com- 
plete contract  by  force  of  its  terms. 

It  does  not  affect  the  conclusion,  based  on  these  views,  that 
the  present  guaranty  was  for  future  advances  as  well  as  an 
existing  debt.  It  cannot,  therefore,  be  treated  as  if  it  were 
an  engagement,  in  which  the  only  consideration  was  the  future 
credit  solicited  and  expected.  The  recital  of  the  consideration 
paid  by  the  guarantee  to  the  guarantor  shows  a  completed 
contract,  based  upon  the  mutual  assent  of  the  parties;  and 
if  it  is  a  contract  at  all,  it  is  one  for  all  the  purposes  expressed 
in  it.  It  is  an  entirety,  and  cannot  be  separated  into  distinct 
parts.  The  covenant  is  single,  and  cannot  be  subjected  in  its 
interpretation  to  the  operation  of  two  diverse  rules. 

Of  course  the  instrument  takes  effect  only  upon  delivery. 
But  in  this  case  no  question  was  or  could  be  made  upon  that. 
It  was  admitted  that  it  was  delivered  to  Gordon  for  delivery 
to  the  plaintiffs  below,  and  that  he  delivered  it  to  them. 

But  if  we  should  consider  that,  notwithstanding  the  com- 
pleteness of  the  contract  as  such,  the  guaranty  of  future  ad- 
vances was  subject  to  a  condition  implied  by  law  that  no- 
tice should  be  given  to  the  guarantor  that  the  guarantee  either 
would  or  had  acted  upon  the  faith  of  it,  we  are  led  to  inquire 
what  effect  is  to  be  given  to  the  use  of  the  words  which  de- 
clare that  the  guarantors  thereby  "guarantee  unto  them,  the 
said  Wells,  Fargo  &  Co.,  unconditionally,  at  all  times,  any  in- 
debtedness of  Gordon  &  Co.,  etc.,  to  the  extent  and  not  exceed- 
ing the  sum  of  ten  thousand  dollars  for  any  overdrafts  now 
made,  or  that  hereafter  may  be  made,  at  the  bank  of  said 
Wells,  Fargo  &  Co." 

Upon  the  supposition  now  made,  the  notice  alleged  to  be 
necessary  arises  from  the  nature  of  such  a  guaranty.  It  is 
not  and  cannot  be  claimed  that  such  a  condition  is  so  essential 
to  the  obligation  that  it  cannot  be  waived.  We  do  not  see, 


DAVIS  v.  WELLS.        .  171 

therefore,  what  less  effect  can  be  ascribed  to  the  words  quoted 
than  that  all  conditions  that  otherwise  would  qualify  the  obli- 
gations are  by  agreement  expunged  from  it  and  made  void.  The 
obligation  becomes  thereby  absolute  and  unqualified;  free  from 
all  conditions  whatever.  This  is  the  natural,  obvious,  and  or- 
dinary meaning  of  the  terms  employed,  and  we  cannot  doubt 
that  they  express  the  real  meaning  of  the  parties.  It  was 
their  manifest  intention  to  make  it  unambiguous  that  Wells, 
Fargo  &  Co.,  for  any  indebtedness  that  might  arise  to  them 
in  consequence  of  overdrafts  by  Gordon  &  Co.  might  securely 
look  to  the  guarantors  without  the  performance  on  their  part 
of  any  conditions  precedent  thereto  whatever. 

It  has  always  been  held  in  this  court,  that,  notwithstand- 
ing the  contract  of  guaranty  is  the  obligation  of  a  surety,  it  is 
to  be_  construed  as  a  mercantile ^instrument  in_Jurtherance_jc>f^ 
jts_  spirit  and,  liberally,  to  promote  the  use  and  convenience 
of  commercial  intercourse. 

This  view  applieVwith  equal  force  to  the  exceptions  to  the 
other  charges  and  refusals  to  charge  of  the  court  below.  These 
exceptions  are  based  on  the  propositions, — 

1.  That    if   Wells,   Fargo   &    Co.   neglected   to    notify   the 
defendants  below   of  the   amount  of  the  overdraft  within  a 
reasonable  time  after  closing  the  account  of  Gordon  &  Co.; 
and, 

2.  That    if    they    failed    within    a    reasonable    time    after 
demand  of  payment  made  upon  Gordon  &  Co.,  to  notify  the 
defendants  of  the  default,  the  plaintiffs  could  not  recover  upon 
the  guaranty. 

For  if  the  necessity  in  either  or  both  of  these  contingencies 
existed  to  give  the  notice  specified,  it  was  because  the  duty 
to  do  so  was,  by  construction  of  law,  made  conditions  of  the 
contract. 

But  by  its  terms,  as  we  have  shown,  the  contract  was  made 
absolute,  and  all  conditions  were  waived. 

It  is  undoubtedly  true,  that  if  the  guarantee  fails  to  give 
reasonable  notice  to  the  guarantor  of  the  default  of  the  prin- 
cipal debtor,  and  loss  or  damage  thereby  ensues  to  the  guar- 
antor, to  that  extent  the  latter  is  discharged;  but  both  the 
laches  of  the  plaintiff  and  the  loss  of  the  defendant  must 
concur  to  constitute  a  defence. 


172  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

If  any  intermediate  notice,  at  the  expiration  of  the  credit, 
of  the  extent  of  the  liability  incurred  is  requisite,  the  same 
rule  applies.  Such  was  the  express  decision  in  Louisville 
Manufacturing  Co.  v.  "Welch,  supra.  An  unreasonable  delay  in 
giving  notice,  or  a  failure  to  give  it  altogether,  is  not  of  itself 
a  bar. 

There  was  a  question  made  at  the  trial  as  to  the  meaning  of 
the  word  "overdrafts,"  as  used  in  the  guaranty.  It  was  con- 
tended that  it  would  not  include  the  debit  balance  of  account 
charged  to  Gordon  &  Murray,  and  assumed  by  Gordon  &  Co., 
as  their  successors,  before  the  guaranty  was  made,  nor  charges 
of  interest  accrued  upon  the  balance  of  Gordon  &  Co. 's  ac- 
count, which  was  entered  to  the  debit  of  the  account.  The 
reason  alleged  was,  that  no  formal  checks  were  given  for  these 
amounts.  The  point  was  not  urged  in  argument  at  the  bar, 
and  was  very  properly  abandoned. 

The  charges  were  legitimate  and  correct,  and  the  balance  of 
the  account  to  the  debit  of  Gordon  &  Co.  was  the  overdraft 
for  which  they  were  liable.  There  could  be  no  doubt  that  it 
was  embraced  in  the  guaranty. 

We  find  no  error  in  the  record. 

Judgment  affirmed^ 


b.  A  mere  proposition  to  guarantee  or  an  offer  to  guarantee  a 
debt  yet  to  be  contracted  and  uncertain  in  amount,  re- 
quires notice  of  its  acceptance  to  render  it  binding. 

TAUSIG  v.  REID.    1893. 
145  El.  488;  32  N.  E.  Rep.  918. 

On  rehearing. 

PER  CUKIAM.  Upon  the  filing  of  the  foregoing  opinion,  judg- 
ment was  entered  reversing  and  remanding  the  cause  for  a 
new  trial.  Upon  petition  for  rehearing  points  were  made  to 
which  our  attention  had  not  been  directed,  and  we  have  again 
considered  the  case.  Counsel  for  appellees,  conceding  the  cor- 
rectness of  the  views  expressed,  insist  that  a  reversal  should 
not  be  had  because  of  the  error  in  giving  said  instruction,  for 
the  reason  that  at  the  time  Mrs.  Zuckerman  became  insolvent 


TAUSIG  v.  REID.  173 

(November  24,  1887)  there  was  more  than  $1,500  of  the  in- 
debtedness to  plaintiffs  not  due,  and  in  respect  of  which  there 
had  been  no  default  of  payment,  and,  the  rule  being  that  in 
case  of  insolvency,  notice  of  non-payment,  in  such  case,  being 
without  avail,  is  not  required  to  be  given,  the  guarantors  were 
not  released  in  respect  of  such  indebtedness  from  liability.  It 
is  conceded  that  over  $1,500  of  the  indebtedness  from  Mrs. 
Zuckerman  to  plaintiffs  had  not  matured  at  the  date  she  ba- 
came  insolvent.  It  is  therefore  said  that  if  the  instruction  is 
erroneous,  as  applied  to  the  facts  of  this  case,  it  was  not  prej- 
udicial error;  and  it  would  follow  from  the  principles  before 
announced,  if  the  amount  of  $1,500  was  due  when  this  suit 
was  brought,  which  was  not  due  on  the  24th  of  November, 
1887,  notice  of  non-payment  thereof  would  have  been  unavail- 
ing to  the  guarantor. 

It  is  insisted,  however,  that,  although  there  was  over  $1,500 
not  due  from  Mrs.  Zuckerman  when  she  became  insolvent,  the 
guarantors  were  discharged  from  liability,  because  after  the 
execution  of  the  guaranty  she  made  default  in  payments  in 
excess  of  $1,500,  of  which  no  notice  was  given  to  the  guar- 
antors. It  is  shown  that,  commencing  in  February,  1887,  con- 
siderable balances  remained  unpaid,  and  on  the  18th  of  April, 
1887,  she  was  in  default  in  payment  of  over  $1,800;  and  that 
a  note  or  notes  was  taken  in  settlement  of  the  amount  then  due ; 
that  subsequently  to  that  date  she  was  in  default  of  various 
sums,  aggregating,  October  24,  1887,  something  over  $1,100. 
As  this  cause  must  be  again  submitted  for  trial,  we  have  deemed 
it  proper  to  notice  this  instance.  The  position  of  appellants  is 
untenable.  They  guaranteed  the  prompt  payment  at  maturity 
of  any  indebtedness  owing  by  Mrs.  Zuekerman  to  the  plain- 
tiffs for  goods  purchased,  or  thereafter  to  be  purchased,  of 
them,  to  the  amount  of  $1,500.  This  amount  stated  in  the 
guaranty,  was  a  limitation  upon  the  liability  of  the  guarantors, 
and  not  a  limitation  upon  the  credit  to  be  extended  to  Mrs. 
Zuckerman.  It  was,  as  we  have  seen,  a  continuing  guaranty, 
and  plainly  contemplated  that  payments  made  or  indebtedness 
otherwise  settled  by  Mrs.  Zuckerman  should  not  in  any  wise 
affect  their  liability  for  indebtedness  incurred  by  her  for 
goods  purchased,  and  not  paid  for  at  maturity.  The  contract 
of  guaranty  looked  to  a  future  course  of  dealing  for  an  in- 


174  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

definite  time;  that  is,  a  succession  of  credits  was  to  be  ex- 
tended, and  the  guarantors  undertook  to  be  liable  to  the  ex- 
tent of  $1,500  "for  any  indebtedness  contracted  in  the  course 
of  such  dealings,  and  not "  paid  by  Mrs.  Zuckerman  at  ma- 
turity. "Without  extending  this  opinion  by  citation  from  the 
authorities  it  will  be  found  that  the  position  taken  is  sup- 
ported by  Bent  v.  Hartshorn,  1  Mete.  (Mass.)  24;  Douglass 
v.  Reynolds,  7  Pet.  113 ;  Hatch  v.  Hobbs,  12  Gray,  447 ;  Gates 
v.  McKee,  13  N.  Y.  232;  Rindge  v.  Judson?  24  N.  Y.  64;  Grant 
v.  Ridsdale,  2  Har.  &  J.  186;  Mason  v.  Pritchard,  12  East, 
227;  Rapely  v.  Bailey,  5  Conn.  149;  Hargreave  v.  Smee,  6 
Bing.  244;  Martin  v.  Wright,  6  Adol.  &  E.  (N.  S.)  917;  Crit- 
tenden  v.  Fiske,  46  Mich.  70,  8  N.  W.  Rep.  714,  and  other 
cases.  It  cannot  be  said  that  the  cases  are  entirely  harmonious 
as  to  the  principles  which  govern  in  the  construction  of  this 
class  of  instruments;  but  the  weight  of  authority  seems  to  be 
in  favor  of  construing  them  by  rules  at  least  as  favorable  to 
the  creditor  as  those  applied  to  other  written  contracts,  not- 
withstanding the  guarantor  is,  in  a  sense,  to  be  regarded  as  a 
surety.  In  Mason  v.  Pritchard,  supra,  it  is  held  that  the 
words  are  to  be  taken  as  strongly  against  the  party  giving 
the  guaranty  as  the  sense  of  them  will  admit.  The  same  gen- 
eral principle  is  held  more  or  less  directly  in  Drummond  v. 
Prestman,  12  "Wheat.  515;  Douglass  v.  Reynolds,  supra;  Law- 
rence v.  McCalmont,  2  How.  426;  Bell  v.  Bruen,  1  How.  69; 
Dobbin  v.  Bradley,  17  Wend.  422;  Mayer  v.  Isaac,  6  Mees. 
&  W.  605. 

Taking  the  language  of  this  instrument,  and  construing  it 
in  the  light  of  the  circumstances  surrounding  it,  it  seems  clear 
that  it  was  intended  that  Mrs.  Zuckerman  should  have  credit 
with  the  plaintiffs,  and  that  appellants  would  be  liable  for 
any  balance  that  might  remain  unpaid  fat  maturity  at  any 
time  during  the  continuance  of  the  guaranty;  that  is,  that  it 
was  intended  to  give  her  credit  with  the  plaintiffs  to  the 
amount  of  $1,500,  until  the  guaranty  should  be  revoked.  We 
are  of  opinion  that  the  previous  condition  of  her  account 
with  the  plaintiffs  in  no  wise  affected  the  liability  of  the 
guarantors  for  any  sum  owing  by  Mrs.  Zuckerman  from 
which  they  had  not  been  discharged  by  the  failure  of  the 
plaintiffs  to  give  notice,  within  a  reasonable  time,  of  non- 


TAUSIG  v.  REID.  175 

payment.  It  will,  however,  be  observed  that  the  contract  of 
the  guarantors  is  that  Mrs.  Zuckerman  would  pay  promptly  ' '  at 
maturity"  any  indebtedness,  etc.  Counsel  for  appellees  show 
conclusively  that  at  least  $578.18  of  the  indebtedness  of  Mrs. 
Zuckerman  was  not  due  until  after  the  15th  day  of  December, 
1887.  After  giving  the  items  of  sales  of  goods  by  plaintiff  to 
Mrs.  Zuckerman  from  the  15th  to  the  23d  of  November,  coun- 
sel say:  "The  earliest  of  these  sales  was  made  on  November 
15th,  and  therefore  the  credit  on  the  same  did  not  expire  until 
December  15th,  and  those  following  became  due  at  a  cor- 
responding later  period."  It  is  conceded,  and  is  shown  by 
the  record,  the  amount  sold  on  each  day  was  treated  as  a 
separate  transaction,  and  the  indebtedness  for  the  day's  sales 
would  mature  at  the  end  of  the  credit  given;  that  is,  the 
credit  being  30  days,  the  indebtedness  contracted  on  the  15th 
of  November  would  become  due  December  15th,  and  that  con- 
tracted on  subsequent  days  at  corresponding  dates  in  December. 
The  same  is  true  of  the  goods  purchased  on  the  9th,  10th,  llth, 
12th,  and  14th  days  of  November,  as  shown  by  the  record, 
and  amounting  in  the  aggregate  to  several  hundred  dollars. 
It  is  apparent,  therefore,  that  on  December  9,  1887,  these  sev- 
eral amounts  had  not  matured,  and  the  liability  of  appellants 
for  their  prompt  payment  at  maturity  had  not  attached. 
Counsel  for  appellees  are  correct  in  their  contention  that  the 
record  shows  that  these  goods  were  mainly,  at  least,  sold  upon 
30  days '  time ;  and  there  is  nothing  shown  by  which  the  credit 
could,  at  the  option  of  the  plaintiffs,  be  shortened.  This 
suit  was  brought  December  9,  1887,  and  it  is  clear  that  the 
liability  of  the  guarantors  in  respect  of  such  sales  had  not 
attached.  If  suit  had  been  brought  against  Mrs.  Zuckerman 
at  that  time,  a  complete  defense  as  to  these  items  of  indebted- 
ness would  have  existed,  because  they  had  not  matured  at  the 
time  the  suit  was  brought.  The  indebtedness  not  having  ma- 
tured, there  was  no  liability  upon  the  guaranty  therefor.  A 
casual  examination  of  the  accounts  will  show  that  if  reason- 
able time  of  giving  notice  of  nonpayment  be  allowed,  and  for 
this  purpose  the  accounts  maturing  on  and  before  the  18th 
of  November  only  be  excluded  because  of  failure  to  give  notice 
of  nonpayment,  it  will  be  found  that  much  less  than  $1,500 
of  the  indebtedness  of  Mrs.  Zuckerman  to  the  plaintiffs  had 


176  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

.    V 

matured  on  the  9th  of  December,  1887.  It  cannot  be  presumed 
that  there  was  included  in  the  judgment,  which  was  for  the 
full  amount  of  the  guaranty,  indebtedness  not  matured;  and  it 
is  therefore  clear  that  the  instruction  complained  of  must  have 
led  the  jury  into  the  error  of  taking  into  consideration,  in  de- 
termining the  amount  for  which  appellants  were  liable,  the 
indebtedness  of  Mrs.  Zuckerman  that  had  matured  before 
the  18th  of  November,  and  in  respect  of  which  appellants'  lia- 
bility as  guarantors  had  been  discharged.  What  will  be  rea- 
sonable time  in  which  to  give  notice  must  depend  upon  the 
circumstances  in  each  particular  case  (Dickerson  v.  Derrickson, 
39  111.  574;  2  Pars.  Cont.  174)  ;  and  while  it  is  not  necessary 
to  determine  the  question,  it  would  seem  from  the  facts  here 
shown  that  five  days'  time  would  at  least  be  reasonable  within 
which  to  give  notice  of  nonpayment.  Other  errors  are  as- 
signed, which  will  undoubtedly  be  corrected  upon  another  trial, 
and  need  not  be  considered.  We  are  of  opinion  that  the  judg- 
ment heretofore  entered  reversing  the  judgments  of  the  ap- 
pellate and  circuit  courts,  and  remanding  the  cause,  was 
correct,  and  the  same  judgment  will  be  again  entered. 

Reversed  and  remanded. 


DOUGLAS  v.  REYNOLDS.   (1833.) 
7  Peters  113. 

The  case  is  stated  in  the  opinion  of  the  court. 

STORY,  J.,  delivered  the  opinion  of  the  court. 

This  case  comes  before  us  upon  a  writ  of  error  to  a  judgment 
of  the  district  court  of  the  district  of  Mississippi,  in  which  the 
plaintiffs  in  error  are  defendants  in  the  court  below. 

The  original  action  is  founded  upon  a  guarantee,  given  by 
Douglas  and  others  in  favor  of  one  Chester  Haring,  by  the  fol- 
lowing letter: 

"PORT  GIBSON,  December,  1807. 
"Messrs.  Reynolds,  Byrne  and  Co. 

"Gentlemen:  Our  friend,  Mr.  Chester  Haring, -to  assist  him 
in  business,  may  require  your  aid  from  time  to  time,  either  by 
acceptance  or  indorsement  of  his  paper,  or  advances  in  cash. 
In  order  to  save  you  from  harm  by  so  doing,  we  do  hereby  bind 


DOUGLAS  v.  REYNOLDS.  177 

ourselves,  severally  and  jointly,  to  be  responsible  to  you  at  any 
time  for  a  sum  not  exceeding  $8,000,  should  the  said  Chester 
Haring  fail  to  do  so. 

"Your  obedient  servants, 

"JAMES  S.  DOUGLAS. 

"THOMAS  G.   SINGLETON. 

"THOMAS  GOING." 

The  declaration  contains  two  counts.  The  first  alleges  that, 
upon  the  faith  of  the  letter,  the  original  plaintiffs  accepted  and 
indorsed  drafts  or  paper  of  Haring  to  the  amount  of  $8.000, 
which  they  were  obliged  to  pay,  and  did  pay  at  the  maturity 
thereof;  and  of  which  they  gave  due  notice  to  the  defendants. 
The  second  count  is  for  money  lent,  and  money  had  and  re- 
ceived. But  this  may  be  laid  entirely  out  of  the  case,  since  it 
is  very  clear  that,  upon  a  collateral  undertaking  of  this  sort, 
no  such  suit  is  maintainable. 

At  the  trial  upon  the  general  issue  and  the  plea  of  payment, 
the  plaintiffs,  who  are  resident  merchants  at  New  Orleans, 
offered  evidence  to  prove  the  payment  of  five  promissory  notes, 
dated  on  the  1st  of  May,  1829,  payable  to  Daniel  Greenleaf  OK 
order,  and  indorsed  by  him,  namely:  one  note  due  on  the  20th 
of  November,  1829,  for  $4,000 ;  one  due  on  the  20th  of  Decem- 
ber, 1829,  for  $4,500;  one  due  on  the  20th  of  January,  1830, 
for  $5,500;  one  due  on  the  20th  of  February,  1830,  for  $5,500; 
and  one  due  on  the  20th  of  March,  1830,  for  $5,500,  in  the 
whole  amounting  to  $25,000;  and  that  the  notes  had  been  dis- 
counted with  the  plaintiffs'  indorsement  thereon,  and  were 
taken  up  by  them  at  maturity. 

It  also  appeared  in  evidence  that  soon  after  the  letter  of  guar- 
antee had  been  received,  acceptance  had  been  made  of  the  drafts 
of  Haring  by  the  plaintiffs  to  the  amount  of  $8,000;  and  that 
other  large  transactions  of  debt  and  credit  took  place  between 
them,  upon  which,  on  the  1st  of  May?  1829,  there  was  a  bal- 
ance of  principal  of  $22,573.23,  besides  interest,  due  to  the 
plaintiffs,  and  credits  to  a  larger  amount  than  $8,000  had 
come  into  possession  of  the  plaintiffs.  And  on  that  day  the 
foregoing  notes  were  received,  and  the  following  receipt  writ- 
ten on  the  account  containing  the  balance: 

"Received,  Port  Gibson,  May  1,  1829,  in  part  and  on  account 
of  the  above  account,  and  interest  that  may  be  due  thereon,  the 
12 


178  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

following  notes,  to- wit  (enumerating  them),  amounting  in  all 
to  $25,000,  which  notes,  when  discounted,  the  proceeds  to  go  to 
the  credit  of  this  account. 

"REYNOLDS,  BYRNE  AND  Co." 

There  was  a  good  deal  of  other  evidence  in  the  cause,  but  it 
does  not  seem  necessary  to  state  it  at  large,  since  no  part  of  it 
becomes  important  to  a  just  understanding  of  the  merits  of  the 
controversy,  as  it  now  stands  before  us. 

In  the  progress  of  the  trial,  the  depositions  of  several  wit- 
nesses who  were  clerks  in  the  counting-house  of  the  plaintiffs 
were  read,  in  which  they  stated  that  they  knew  that  the  letter 
of  credit  was  considered  by  the  plaintiffs  as  covering  any  bal- 
ance due  by  Chester  Haring  to  the  plaintiffs,  for  advances  from 
that  time  to  the  extent  of  $8,000 ;  and  that  advances  were  made, 
and  moneys  paid  by  them  on  account  of  Haring  from  the  time 
of  receiving  the  said  letter  of  credit,  predicated  on  the  said  let- 
ter always  protecting  the  plaintiffs  to  the  amount  of  $8,000, 
whenever  the  said  amount  or  less  might  be  uncovered,  and  that 
it  was  considered  in  the  said  counting-house  of  the  plaintiffs  as 
a  continuing  letter  of  credit,  and  so  acted  upon  by  the  plaintiffs. 
To  the  admission  of  this  part  of  the  depositions  the  defendants 
objected;  but  the  court  overruled  the  objection,  and  permitted 
the  evidence  to  be  read  to  the  jury  as  evidence  of  the  reliance 
of  the  plaintiff  upon  the  letter  of  credit  to  the  amount  of  the 
$8,000,  for  acceptance,  payments,  advances,  and  indorsements 
made  to  Haring.  The  defendants  excepted  to  this  admission  of 
the  evidence,  and  the  propriety  of  this  ruling  of  the  court  con- 
stitutes the  first  question  in  the  case. 

We  are  of  opinion  that  the  evidence  was  rightly  admitted  in 
the  view  and  for  the  purposes  stated  by  the  court  below.  It 
was  not  offered  to  explain  or  establish  the  construction  of  the 
letter  of  credit.  See  Russell  v.  Clarke,  3  Dall.  415,  s.  c.  7 
Craneh,  69,  whether  it  constituted  a  limited  or  a  continuing 
guarantee;  and  was  not  thus  open  to  the  objection  which  has 
been  relied  on  at  the  bar,  that  it  was  an  attempt  by  parol  evi- 
dence to  explain  a  written  contract.  It  was  admitted  simply 
to  establish  that  credit  had  been  given  to  Haring  upon  the  faith 
of  it  from  time  to  time,  and  that  it  was  treated  by  the  plaintiffs 
as  a  continuing  guarantee;  so  that  if,  in  point  of  law,  it  was 
entitled  to  that  character,  the  plaintiffs'  claim  might  not  be 


DOUGLAS  v.  REYNOLDS.  179 

cpen  to  the  suggestion  that  no  such  advances,  acceptances,  or 
indorsements  had  in  fact  been  made  upon  the  credit  of  it;  an 
objection  which,  if  founded  in  fact,  might  have  been  fatal  to 
their  claim.  Nothing  can  be  clearer  upon  principle,  than  that 
if  a  letter  of  credit  is  given,  but  in  fact  no  advances  are  made 
upon  the  faith  of  it,  the  party  is  not  entitled  to  recover  for  any 
debts  due  to  him  from  the  debtor,  in  whose  favor  it  was  given, 
which  have  been  incurred  subsequently  to  the  guarantee,  and 
without  any  reference  to  it. 

The  other  exceptions  are  to  certain  instructions  prayed  by 
the  defendants,  and  refused  by  the  court. 

They  are  as  follows: 

1.  That  the  said  letter  of  credit  sued  on  is  not  a  continuing 
guarantee,  but  is  a  limited  one;   and  that  when  an  advance  or 
advances,  acceptance  or  acceptances,  indorsement    or    indorse- 
ments, had  been  made  by  the  plaintiffs  on  the  faith  of  said  let- 
ter of  credit  to  the  amount  of  $8,000,  the  guarantee  became 
functus  officio,  and  ceased  to  operate  upon  any  future  advances, 
acceptances,  or  indorsements,  made  by  said  plaintiffs  for  Ches- 
ter Haring.    And  that  if  the  said  plaintiffs  received  from"  said 
Haring,  in  payment  of  their  advances,  acceptances,  or  indorse- 
ments, made  on  account  of  said  guarantee,  the  amount  of  $8,000, 
it  was  a  discharge  of  said  letter  of  guarantee;    and  that  any 
future    advances,    acceptances,    or    indorsements,    cannot    be 
charged  against  and  recovered  from  the  defendants,  by  virtue 
of  said  letter  of  credit. 

2.  That  to  entitle  the  plaintiffs  to  recover  on  said  letter  of 
guarantee,  they  must  prove  that  notice  had  been  given  in  a  rea- 
sonable time  after  said  letter  of  guarantee  had  been  accepted  by 
them,  to  the  defendants  that  the  same  had  been  accepted. 

3.  That  to  entitle  the  plaintiffs  to  recover  on  said  letter  of 
credit,  they  must  prove  that,  in  a  reasonable  time  after  they 
had  made    advances,    acceptances,    or    indorsements,    for    said 
Haring,  on  the  faith  of  said  letters  of  guarantee,  they  gave  no- 
tice to  said  defendants  of  the  amount  and  extent  thereof. 

4.  That  to  entitle  the  plaintiffs  to  recover  on  said  letter  of 
credit,  they  must  prove  that  a  demand  of  payment  had  been 
made  of  Chester  Haring,  the  principal  debtor,  of  the  debt  sued 
for;    and  in  case  of  non-payment  by  him,  that  notice  of  such 
demand  and  non-payment  should  have  been  given  in  a  reason- 


180  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

able  time  to  the  defendants;    and  in  failure  of  such  proof,  the 
defendants  are  in  law  discharged. 

5.  That  the  promissory  notes,  drawn  by  C.  Haring,  the  prin- 
cipal debtor,  and  indorsed  by  Daniel  Greenleaf,  and  received  by 
the  plaintiffs  on  the  1st  of  May,  1829,  as  expressed  in  the  said 
receipt  of  that  date  at  the  end  of  their  said  account,  and  the 
discounting  the  same  in  New  Orleans  by  the  plaintiffs  after 
they  had  indorsed  the  same  for  that  purpose;   the  same  being 
discounted  before  they  fell  due,  and  the  receipt  of  the  net  pro- 
ceeds arising  from  the  discounting,  carried    to    the    credit    of 
Chester  Haring 's  account  on  the  books  of  the  plaintiffs,  was  a 
discharge  of  the  guarantors  on  said  guarantee,  provided  the 
debt  now  sued  for  was  included  in  the  sum  total  of  said  ac- 
count, on  account  of  which  said  promissory  notes  were  taken 
and  receipted  for. 

6.  That  if  the  said  notes,  mentioned  in  said  receipt,  were  re- 
ceived as  conditional  payments  of  said  debt,  the  defendants  are 
discharged,  unless  it  be  proved  that  due  diligence  has  been  used 
to  recover  the  amount  called  for  by  said  notes  from  the  indi- 
viduals responsible  thereon,  and  that  the  same  could  not  be 
obtained. 

7.  That  the  plaintiffs,  by  accepting  said  notes  on  account  of 
said  debt,  from  C.  Haring,  the  principal  debtor,  with  D.  Green- 
leaf  as  indorser,  on  account  of  said  debt,  the  same  being  at  that 
time  due,  and  receiving  the  money  on  the  same  by  discounting 
them,  and  the  passing  said  notes  away  by  indorsement,  could 
not  have  sued  Haring  for  the  original  debt,  before  said  notes 
fell  due,  dishonored,  and  returned  to  the  plaintiffs;    and  that, 
therefore,  they  by  their  own  act  placed  in  out  of  their  power 
to  proceed  against  said  Haring,  to  recover  said  debt,  before  said 
notes  fell  due  and  were  returned  to  the  plaintiffs,  which,  in  law, 
discharge  the  guarantors. 

There  was  another  exception,  but  it  was  withdrawn  from  the 
cause  by  the  defendants;  and  that,  as  well  as  another  respect- 
ing the  refusal  of  the  court  to  sign  the  bill  of  exceptions,  with- 
out incorporating  in  it  the  evidence  given  at  the  trial,  may  be 
dismissed  without  commentary.  It  is  proper  to  add,  however, 
that  the  conduct  of  the  court  in  relation  to  the  bill  of  exceptions 
constitutes  no  just  matter  of  error  revisable  in  this  form  of 
proceeding;  and  if  it  did,  we  see  no  reason  to  question  the  pro- 


DOUGLAS  v.  REYNOLDS.  181 

priety  of  its  conduct  upon  the  present  occasion.  It  is  mani- 
festly proper  for  the  court  to  require  that  all  the  evidence  which 
is  explanatory  of  the  true  points  of  the  exceptions  should  be 
brought  before  the  appellate  court,  to  assist  it  in  forming  a  cor- 
rect judgment. 

The  question  involved  in  thev  first  instruction  is,  whether  the 
guarantee  contained  in  the  letter  is  a  iimite3"or'>'a"  continuing 
guarantee;  or,  in  other  words,  whether  it  covered  advances,  ac- 
ceptances, and  indorsements,  in  the  first  instance,  to  the  amount 
of  $8,000,  and  terminated  when  these  were  discharged ;  or  wheth- 
er it  covered  successive  advances,  acceptances,  and  indorsements 
made  to  the  same  amount  at  any  future  times,  toties  quoties, 
whenever  the  antecedent  transactions  were  discharged.  Upon 
deliberate  consideration,  we  are  of  opinion  that  it  is  a  contin- 
uing guarantee ;  and  we  found  ourselves  upon  the  language,  and 
the  apparent  intent  and  object  of  the  letter.  Every  instrument 
of  this  sort  ought  to  receive  a  fair  and  reasonable  interpreta- 
tion, according  to  the  true  import  of  its  terms.  It  being  an  en- 
gagement for  the  debt  of  another,  there  is  certainly  no  reason 
for  giving  it  an  expanded  signification,  or  liberal  construction 
beyond  the  fair  import  of  the  terms.  It  was  observed  by  the 
court  in  Russell  v.  Clarke's  Executors,  7  Cranch,  69,  that  ''the 
law  will  subject  a  man,  having  no  interest  in  the  transaction, 
to  pay  the  debt  of  another  only  when  his  undertaking  manifests 
a  clear  intention  to  bind  himself  for  that  debt.  Words  of  doubt- 
ful import  ought  not,  it  is  conceived,  to  receive  that  construc- 
tion. ' '  On  the  other  hand,  as  these  instruments  are  of  extensive 
use  in  the  commercial  world,  upon  the  faith  of  which  large 
credits  and  advances  are  made,  care  should  be  taken  to  hold  the 
party  bound  to  the  full  extent  of  what  appears  to  be  his  en- 
gagement ;  and  for  this  purpose  it  was  recognized  by  this  court 
in  Drummond  v.  Prestman,  12  Wheat.  515,  as  a  rule  in  expound- 
ing them,  that  the  words  of  the  guarantee  are  to  be  taken  as 
strongly  against  the  guarantor  as  the  sense  will  admit;  Fell  on 
Guarantee,  c.  5,  p.  128,  etc. ;  and  the  same  rule  was  adopted  in 
the  king's  bench  in  Mason  v.  Pritchard,  12  East,  227. 

If  we  examine  the  language  or  object  of  the  present  letter, 
we  think  it  is  difficult  to  escape  from  the  conclusion  that  it  was 
intended  and  was  understood  by  all  the  parties  as  a  continuing 
guarantee.  There  is  no  doubt  that  it  was  so  interpreted  by  the 


182  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

plaintiffs.  The  object  is  to  assist  Haring  in  business;  "our 
friend  Mr.  Chester  Haring,"  to  assist  him  "in  business  may 
require  your  aid.."  It  was  not  contemplated  to  be  a  single  trans- 
action, or  an  unbroken  series  of  transactions  for  a  limited  pe- 
riod. The  aid  required  was  to  be  "from  time  to  time,  either 
by  acceptance  or  indorsement  of  his  paper,  or  advances  in  cash. ' ' 
The  very  nature  of  such  negotiations,  with  reference  to  the 
business  of  the  party,  unless  other  controlling  words  accom- 
panied them,  would  seem  to  indicate  a  succession  of  acts  at  dif- 
ferent periods,  having  no  definite  termination  or  necessary  con- 
nection with  each  other.  The  language  of  the  letter  then  pro- 
ceeds: "In  order  to  save  you  from  harm  in  so  doing,  we  do 
hereby  bind  ourselves,  etc.,  to  be  responsible  to  you  at  any  time 
for  a  sum  not  exceeding  $8,000,  should  the  said  Chester  Haring 
fail  so  to  do."  It  is  difficult  to  satisfy  this  language  without 
giving  to  the  guarantee  a  continuing  operation.  The  parties 
agree  to  be  responsible,  at  any  time,  for  a  sum  not  exceeding 
$8,000;  and  if  so,  is  not  the  natural,  nay  necessary  import,  that 
the  acceptances,  indorsements,  and  advances  are  not  limited  in 
duration;  but  that  whenever  made,  and  at  whatever  future 
times,  the  same  responsibility  shall  attach  upon  them,  not  ex- 
ceeding $8,000  ?  We  think  that  it  would  be  difficult  to  give  any 
other  interpretation  of  the  language,  without  subjecting  mer- 
cantile papers  to  refinements  and  subtleties  which  would  betray 
innocent  men  into  the  most  severe  losses  by  an  unsuspecting 
confidence  in  them.  That  the  language  fairly  admits  of,  if  it 
does  not  absolutely  require  this  construction,  cannot  be  doubted. 
If  it  does  so,  it  is  but  common  justice  that  it  should  receive 
this  construction  in  favor  of  innocent  parties  who  have  made 
acceptances,  indorsements,  and  advances  upon  the  faith  of  it, 
according  to  the  rule  already  stated,  that  the  words  shall  be 
taken  as  strongly  against  the  party  using  them  as  the  sense  will 
admit. 

It  is  rare  that  in  cases  of  guarantee  the  language  of  the  in- 
struments is  such  as  to  make  the  decision  upon  one  an  exact 
authority  for  that  of  another.  The  whole  words  and  clauses 
are  to  be  construed  together,  and  that  sense  is  to  be  given  to 
each  which"  best  comports  with  the  general  scope  and  intent  of 
the  whole.  So  far  as  authorities  go,  however,  we  think  they 
are  decidedly  in  favor  of  the  interpretation  which  we  have 


DOUGLAS  v.  REYNOLDS.  183 

adopted.  In  Mason  v.  Pritchard,  12  East,  227,  s.  c.  2  Camp. 
436,  the  words  of  the  guarantee  were,  "to  be  responsible  for 
any  goods  he  hath  or  may  supply  my  brother  with  to  the  amount 
of  £100."  And  the  court  were  of  opinion  that  it  was  a  con- 
tinuing or  standing  guarantee  to  the  extent  of  £100,  which 
might  at  any  time  become  due  for  goods  supplied  until  the 
credit  was  recalled.  That  case  was  certainly  founded  upon 
words  less  expressive  and  cogent  than  those  of  the  case  before 
us.  In  Merle  v.  "Wells,  2  Camp.  413,  the  guarantee  was:  "I 
consider  myself  bound  to  you  for  any  debt  he  (my  brother) 
may  contract  for  his  business  as  a  jeweler,  not  exceeding  £100, 
after  this  date."  Lord  Ellenborough  held  it  a  continuing  guar- 
antee for  any  debt  not  exceeding  £100,  which  the  brother  might 
from  time  to  time  contract  with  the  plaintiffs  in  the  way  of  his 
business;  and  that  the  guarantee  was  not  confined  to  one  in- 
stance, but  applied  to  debts  successively  renewed.  The  case  of 
Sansom  v.  Bell,  2  Camp.  39,  before  the  same  learned  judge,  is 
to  the  same  effect.  The  case  of  Bastow  v.  Bennet,  3  Camp.  220, 
was  upon  words  far  less  stringent.  There  the  guarantee  was: 
"I  hereby  undertake  and  engage  to  be  answerable  to  the  extent 
of  £300  for  any  tallow  or  soap  supplied  by  B.  to  F.  and  B., 
provided  they  shall  neglect  to  pay  in  due  time."  Lord  Ellen- 
borough  held  it  a  continuing  guarantee,  principally  upon  the 
force  of  the  word  any;  but  the  case  went  off  upon  another 
point. 

The  cases  cited  on  the  other  side  are  all  distinguishable. 
Kirby  v.  The  Duke  of  Marlborough,  2  Maule  &  Selw.  18,  turned 
upon  the  ground  that  the  whole  recital  of  the  bond  showed  that 
a  limited  guarantee,  for  advances  to  a  definite  amount,  when 
they  were  made  the  guarantee,  became  functus  officio.  In  Mel- 
ville v.  Hayden,  3  Barn.  &  Aid.  593,  the  guarantee  was:  "I 
engage  to  guarantee  the  payment  of  A.  to  the  extent  of  £60  at 
quarterly  account,  bill  two  months,  for  goods  to  be  purchased 
by  him  of  B.,"  and  the  court  held,  that  it  was  not  a  continuing 
guarantee,  as  the  words  "quarterly  account"  import  only  the 
first  quarterly  account ;  and  relied  on  the  word  ' '  any ' '  in  Mason 
v.  Pritchard,  12  East,  227,  as  distinguishing  that  case  from  the 
one  before  them.  The  case  of  Rogers  v.  Warner,  8  Johns.  119, 
was  on  a  guarantee  in  these  words:  "If  A  and  B,  our  sons, 
wish  to  take  goods  of  you  on  credit,  we  are  willing  to  lend  our 


184  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

names  as  security  for  any  amount  they  may  wish;"  and  the 
court  held  it  to  be  a  limited  guarantee  for  a  single  credit.  It  is 
observable,  that  here  no  words  of  continuing  credit,  such  as 
"from  time  to  time,"  or  "at  any  time,"  are  used;  so  that  the 
whole  language  is  satisfied  by  one  transaction.  It  is,  therefore, 
strongly  distinguishable  from  that  before  this  court. 

We  cannot  admit,  therefore,  as  has  been  contended  at  the  bar, 
that  the  court  have  inclined  to  vary  the  rule  of  constructions 
of  instruments  of  this  nature,  and  to  hold  them  to  be  strictissimi 
juris  as  to  their  interpretation.  And  we  are  well  satisfied  that 
the  authorities  in  no  degree  interfere  with  the  construction 
which  we  have  given  to  the  terms  of  the  present  letter.  The 
court  below  were  then  right  in  refusing  the  first  instructions. 

The  second  instruction  insists,  that  to  entitle  the  plaintiffs 
to  recover  on  the  guarantee,  they  must  prove  that  notice  had 
been  given  to  the  defendants  of  that  fact  in  a  reasonable  time 
after  the  guarantee  had  been  accepted.  Whether  there  was  not 
evidence  before  the  jury  sufficient  to  have  justified  them  in 
drawing  the  conclusion  that  there  was  such  a  notice,  we  do  not 
inquire.  It  is  sufficient  for  us  to  declare,  that  in  point  of  law 
the  instruction  asked  was  correct,  and  ought  to  have  been  given. 
A  party  giving  a  letter  of  guarantee  has  a  right  to  know 
whether  it  is  accepted,  and  whether  the  person  to  whom  it  is 
addressed  means  to  give  credit  on  the  footing  of  it  or  nfot.  It 
may  be  most  material,  not  only  as  to  his  responsibility,  but  as 
to  future  rights  and  proceedings.  It  may  regulate,  in  a  great 
measure,  his  course  of  conduct  and  his  exercise  of  vigilance  in 
regard  to  the  party  in  whose  service  it  is  given.  Especially  is 
it  important  in  the  case  of  a  continuing  guarantee,  since  it  may 
guide  his  judgment  in  recalling  or  suspending  it. 

The  third  instruction  insists,  that  to  entitle  the  plaintiffs  to 
recover  on  the  guarantee,  they  must  prove  that  in  a  reasonable 
time  after  they  made  advances,  acceptances,  or  indorsements 
for  Haring  on  the  faith  of  the  guarantee,  they  gave  notice  to 
the  defendants  of  the  amount  and  extent  thereof.  If  this  had 
been  the  case  of  a  guarantee  limited  to  a  single  transaction, 
there  is  no  doubt  that  it  would  have  been  the  duty  of  the  plain- 
tiffs to  have  given  notice  of  the  advances,  acceptances,  or  in- 
dorsements made  to  Haring,  within  a  reasonable  time  after  they 
Were  made.  But  this  being  a  continuing  guarantee,  in  which 


DOUGLAS  v.  REYNOLDS.  185 

the  parties  contemplated  a  series  of  transactions,  and  as  soon 
as  the  defendants  had  received  notice  of  the  acceptance,  they 
must  necessarily  have  understood  that  there  would  be  successive 
advances,  acceptances,  and  indorsements,  which  would  be  re- 
newed and  discharged  from  time  to  time,  we  cannot  perceive 
any  ground  of  principle  or  policy  upon  which  to  rest  the -doc- 
trine that  notice  of  each  successive  transaction,  as  it  arose, 
should  be  given.  All  that  could  be  required  would  be,  that 
when  all  the  transactions  between  the  plaintiffs  and  Haring 
under  the  guarantee  were  closed,  notice  of  the  amount  for  which 
the  guarantors  were  held  responsible  should,  within  a  reasonable 
time  afterwards,  be  communicated  to  them.  And  if  the  instruc- 
tion had  asked  nothing  more  than  this,  we  are  of  opinion,  upon 
principle,  as  well  as  upon  the  authority  of  Russell  v.  Clarke's 
Executors,  7  Cranch,  69,  and  Edmondston  v.  Drake,  5  Pet.  624, 
that  it  ought  to  have  been  given.  Oxley  v.  Young,  2  H.  Bl. 
613;  Peel  v.  Tatlock,  1  Bos.  &  Pull.  419.  But  it  goes  much 
further,  and  requires  in  the  case  of  a  continuing  guarantee, 
that  every  successive  transaction  under  it  should  be  communi- 
cated from  time  to  time.  No  case  has  been  cited  which  justifies 
such  a  doctrine,  and  we  can  perceive  no  principle  of  law  which 
requires  it.  The  instruction  was,  therefore,  properly  refused. 
The  fourth  instruction  insists,  that  a  demand  of  payment 
should  have  been  made  of  Haring,  and,  in  case  of  non-payment 
by  him,  that  notice  of  such  demand  and  non-payment  should 
have  been  given  in  a  reasonable  time  to  the  defendants,  other- 
wise the  defendants  would  be  discharged  from  their  guarantee. 
We  are  of  opinion  that  this  instruction  ought  to  have  been 
given.  By  the  very  terms  of  this  guarantee,  as  well  as  by  the 
general  principles  of  law,  the  guarantors  are  only  collaterally 
liable  upon  the  failure  of  the  principal  debtor  to  pay  the  debt. 
A  demand  upon  him  and  a  failure  on  his  part  to  perform  his 
engagements  are  indispensable  to  constitute  a  casus  feoderis. 
The  creditors  are  not  indeed  bound  to  institute  any  legal  pro- 
ceedings against  the  debtor,  but  they  are  required  to"use  reason/' 
able  diligence  to  make  demand,  and  to  give  notice  oY'the  noff-~ 

%«^P-«"—  jltni  •W««MM*-  _mm 

payment.  The  guarantors  are  not  to  be  held  to  any  length  of 
indulgence  of  credit  which  the  creditors  may  choose,  but  have 
a  right  to  insist  that  the  risk  of  their  responsibility  shall  be 
fixed,  and  terminated  within  a  reasonable  time  after  the  debt 


186  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

has  become  due.  The  case  of  Allen  v.  Rightmere,  20  Johns. 
365,  is  distinguishable.  There  the  note  was  payable  to  the  de- 
fendant himself  or  order,  at  a  future  day,  and  he  indorsed  it 
with  a  special  guarantee  of  its  due  payment;  and  the  court 
held  his  condition  absolute  and  not  conditional. 

The  fifth  instruction  insists  that  the  promissory  notes  men- 
tioned in  their  receipt  of  the  1st  of  May,  1829,  when  dis- 
counted, and  the  proceeds  carried  to  the  account  of  Haring, 
operated  a  discharge  of  the  guarantors  provided  the  debt  sued 
for  was  included  in  the  sum  total  of  the  account  for  which 
those  notes  were  received.  "We  think  that  the  court  were  not 
bound  under  the  circumstances  to  give  this  instruction.  It 
proceeds  upon  the  ground,  that  the  notes  were  necessarily  re- 
ceived as  an  absolute  payment,  a  fact  which  the  court  had  no 
right  to  assume,  and  that,  by  indorsing  the  notes  and  procuring 
the  same  to  be  discounted  and  credited  in  the  account,  the 
guarantee  was,  per  se,  discharged.  This  is  not  correct  in  point 
of  law;  for  if  the  plaintiffs,  by  their  indorsements,  were  com- 
pellable  to  pay,  and  did  afterwards  pay  the  notes  upon  their 
dishonor  by  the  maker,  and  these  notes  fell  within  the  scope  of 
the  guarantee,  they  might,  without  question,  recover  the  amount 
from  the  guarantors. 

The  sixth  instruction  asserts,  that  if  the  notes  mentioned  in 
the  receipt  were  received  as  conditional  payments  of  the  said 
debt,  the  defendants  are  discharged,  unless  it  is  proved  that  due 
diligence  had  been  used  to  recover  the  amount  of  them  from  the 
individuals  responsible  thereon,  and  that  the  same  could  not  be 
obtained.  If,  by  the  word  " recover,"  were  here  intended  a 
recovery  by  a  suit  at  law,  the  proposition  could  not  be  main- 
tained. But  if,  as  we  suppose,  it  is  used  in  the  sense  of  collect 
or  obtain,  its  correctness  as  a  general  proposition  in  cases  of 
conditional  payments  of  debts  by  notes,  is  admitted.  He  who 
receives  any  note  upon  which  third  persons  are  responsible,  as 
a  conditional  payment  of  a  debt  due  to  himself,  is  bound  to 
use  due  diligence  to  collect  it  of  the  parties  thereto  at  maturity, 
otherwise  by  his  laches  the  debt  will  be  discharged.  The  diffi- 
culty is  in  applying  the  doctrine  to  the  circumstances  of  the 
present  case  in  the  actual  form  in  which  it  is  propounded  in 
the  instruction.  It  assumes,  as  matter  of  fact,  what  the  court 
cannot  intend,  that  the  notes  were  received  as  conditional  pay- 


THOMPSON  v.  GLOVER.  1ST 

merit.  It  does  not  assert  what  the  debt  is  to  which  it  alludes; 
though  it  probably  refers  to  the  debt  stated  in  the  account  con- 
nected with  the  receipt.  Now,  that  account  is  not  in  terms 
sued  for;  but  certain  drafts  amounting  to  $8,000,  accepted  and 
indorsed,  and  paid  by  the  plaintiffs;  and  whether  they  were 
included  in  the  account  or  not  was  matter  of  evidence  and  not 
matter  of  law.  Although  then  the  instruction  asserted  a  prop- 
osition generally  true  in  point  of  law,  it  is  not  clear  that,  in 
the  very  terms  in  which  it  is  propounded,  with  reference  to 
the  ease  in  judgment,  the  court  were  bound  to  give  it,  since  it 
involved  matters  of  fact. 

The  seventh  instruction  is  open  to  a  similar  objection.  It 
manifestly  assumes,  as  its  basis,  general  questions  of  fact,  upon 
which  the  court  had  no  right  to  pronounce  judgment.  It  also 
supposes  that  the  debt  sued  for  is  wholly  confined  to  the  ac- 
count, and  that  the  notes  referred  to  were  not  within  the  scope 
of  the  guarantee,  and,  if  paid  by  the  plaintiffs,  could  not  be 
recovered  of  the  defendants ;  which  is  far  from  being  admitted. 
Indeed,  this  and  several  of  the  preceding  instructions  proceed 
upon  the  ground,  that  the  guarantee  was  a  limited  and  not  a 
continuing  guarantee,  which  construction  has  been  already  over- 
turned. 

Upon  the  whole,  we  are  of  opinion  that  the  court  below  erred 
in  refusing  the  second  and  fourth  instructions  prayed  by  the 
defendants,  and  that  for  these  errors  the  judgment  must  be 
reversed,  and  the  cause  remanded  to  the  district  court  of  Mis- 
sissippi with  directions  to  award  a  venire  facias  de  novo. 


THOMPSON  v.  GLOVER.    1879. 
78  Ky.  193;  39  Am.  Rep.  220. 

Action  on  guaranty.  The  opinion  states  the  case.  The  de- 
fendant had  judgment  below. 

HIKES,  J.  T.  B.  Glover  of  the  city  of  Louisville,  Kentucky, 
having  shipped  to  appellant,  in  the  city  of  New  York,  twenty- 
three  hogsheads  of  tobacco,  and  desiring  to  draw  on  the  appel- 
lant for  their  full  value,  it  was  agreed  between  appellant,  through 


1S8  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

his  agents,  Lewis  &  Bro.,  in  the  city  of  Louisville,  and  appellee, 
that  in  consideration  that  appellant  would  pay  said  draft  ap- 
pellee would  make  good  to  appellant  any  loss  he  might  sustain 
by  reason  of  the  tobacco  failing  to  sell  for  the  amount  thus  to  be 
advanced.  At  the  time  of  the  agreement  appellee  executed  the 
following  paper  which  was  forwarded  by  Lewis  &  Bro.  to  appel- 
lant in  New  York,  to  wit : 

"Louisville,  Ky.,  May  26,  1876. 
"Mr.  S.  E.  Thompson,  New  York: 

' '  Dear  Sir : — My  brother,  T.  B.  Glover,  having  this  day  shipped 
to  you  for  his  account  twenty-three  hogsheads  of  tobacco  marked 
(giving  numbers),  and  in  view  of  his  drawing  for  full  cost  of 
same,  I  hereby  agree  to  secure  you  against  any  loss  that  this 
shipment  may  make,  and  in  the  event  of  any  loss  bind  myself  to 
pay  it. 

(Signed)          "THOMAS  H.  GLOVER." 

On  the  same  day  and  at  the  same  timez  T.  B.  Glover  drew  a 
one-day  sight-draft  for  $1,943.22,  addressed  to  appellant,  New 
York,  and  payable  to  the  order  of  appellee,  which  was  indorsed 
by  appellee,  accepted  by  appellant  and  paid  by  him  at  maturity. 
The  tobacco  was  sold  and  failed  to  realize  the  amount  of  the 
draft  by  $854.39,  of  which  fact  appellee  was  notified  within  ten 
days,  and  failing  to  pay,  this  action  was  instituted. 

The  only  question  presented  by  the  appeal,  necessary  to  be 
considered,  is  whether  appellee  was  entitled  to  notice  of  accep- 
tance of  the  guaranty. 

It  is  well  established  that  there  must  be  an  acceptance  of  the 
offer  of  guaranty  and  a  notice  express  or  implied  to  the  guaran- 
tor of  such  acceptance.  The  reason  of  this  rule  is,  that  the  guar- 
antor may  have  an  opportunity  of  arranging  his  relations  with 
the  party  for  whose  benefit  or  in  whose  favor  the  guaranty  is 
given.  The  rule  should  not  be  pressed  beyond  this  reason.  When 
the  whole  of  the  transaction  is  connected  and  of  such  a  nature  as 
to  give  the  guarantor  this  information,  no  specific  or  formal  notice 
is  necessary.  In  the  case  under  consideration  the  agreement  to 
accept  made  with  Lewis  &  Bro.  for  appellant,  was  contemporane- 
ous  with  the  guaranty  and  was  the  consideration  therefor,  and 
all  the  parties  being  privy  to  the  whole  transaction  no  specific 
notice  was  necessary.  Wildes  v.  Savage,  1  Story  22 ;  Bleeker  v. 
Hyde,  3  McLean  279 ;  Chitty  on  Cont.  744,  note  c. ;  2  Pars,  on 
Cont.  13 ;  Steadman  v.  Guthrie,  4  Mete.  153 ;  Fells  on  Guaranty 


CENTRAL  SAVINGS  BANK  v.  SHINE.  139 

523 ;  White  v.  Reed,  15  Conn.  463 ;  Smith  v.  Bonn,  6  Wend.  543. 

The  minds  of  all  the  parties  met  and  the  contract  was  com- 
pleted at  the  time  of  the  execution  and  delivery  to  Lewis  &  Bro. 
of  the  writing  by  appellee,  and  of  the  drawing  of  the  draft.  The 
only  notice  that  could  have  been  of  any  benefit  to  the  appellee 
and  to  which  he  was  entitled,  was  the  notice  of  the  amount  that 
the  tobacco  fell  short  and  the  failure  of  T.  B.  Glover  to  pay  the 
same.  This  notice  appellee  received  within  a  reasonable  time. 
Bowman  v.  Curd,  2  Bush.  566. 

Judgment  is  reversed  and  cause  remanded  with  directions  to 
enter  judgment  for  appellant. 

Judgment  reversed. 


CENTRAL  SAVINGS  BANK  v.  SHINE.     1871. 
48  Mo.  456;  8  Am.  Rep.  112. 

Action  on  a  guaranty.    The  opinion  states  the  case. 

WAGNER,  J.  This  cause  was  tried  on  a  second  amended  peti- 
tion, in  which  the  plaintiff  states  as  its  cause  of  action  that  Peter 
O'Neill  and  Francis  Doyle  were  partners  under  the  name  of 
O'Neil  &  Co.,  and  that,  on  the  13th  of  March,  1868,  Joseph 
O'Neil  being  president  of  the  plaintiff,  the  defendant  wrote  to 
him  on  that  day  from  Ireland,  as  follows : 

"Hearing  from  P.  O'Neil  and  Mr.  Doyle  that  they  could  use 
advantageously  some  additional  cash  over  and  above  the  amount 
already  had  of  your  bank,  and  being  desirous  to  promote  their 
interests  and  enable  them  to  carry  on  their  business  efficiently,  I 
will  thank  you  to  submit  to  your  board,  that,  if  they  will  lend 
O'Neil  &  Co.  $15,000  I  shall  hold  myself  responsible  for  that 
amount,  and  will  leave  with  you,  as  collateral  security,  the  note 
and  mortgage  of  Isaac  Walker,  which  is  at  present  in  your 
vault,  for  a  like  sum  (say  $15,000).  If  the  Central  cannot  con- 
veniently make  this  advance,  I  will  feel  obliged  to  assist  them  in 
procuring  it  elsewhere." 

The  petition  also  states  that  this  paper  was  delivered  to  the 
said  president  on  the  30th  day  of  March,  1868,  by  him  on  the 
same  day  laid  before  the  board  of  directors  and  by  them  ac- 
cepted; that,  by  this  writing,  defendant  promised  the  plaintiff 


199  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

that  if  it  would  loan  to  O'Neil  &  Co.  $15,000,  he  (defendant) 
would  be  responsible  for  that  amount;  that  thereupon,  "on  the 
faith  thereof,  plaintiff  lent  to  O'Neil  &  Co.,  in  the  ordinary 
and  usual  manner  of  such  loans,  $15,000,  of  which  defendant 
afterward  had  due  notice;  that  of  this  sum  $10,000  was  lent 
on  the  30th  of  March,  1868,  for  sixty  days,  and  the  balance  on 
the  9th  of  April,  1868,  for  sixty  days;  of  all  of  which  the  de- 
fendant afterward  had  full  knowledge,  and  agreed  and  assented 
thereto  and  approved  thereof." 

The  answer  admitted  the  writing  set  out  in  the  plaintiff's 
petition,  but  denied  that  the  plaintiff  at  any  time  gave  to  the 
defendant  notice  of  the  acceptance  of  the  proposal,  or  that  the 
proposal  was  accepted;  denied,  further,  that  plaintiff  made  to 
O  'Neil  &  Doyle  any  loans  or  advances  on  the  faith  of  the  writing 
as  stated  and  set  forth,  or  that  he  had  any  notice  of  them  from 
any  source,  prior  to  the  commencement  of  this  suit,  or  that  he  at 
•any  time  assented  to  or  approved  the  same. 

To  this  answer  there  was  a  replication,  which  simply  denied 
that  defendant  made  a  proposal  in  writing  to  guaranty  plaintiff, 
in  case  it  would  make  any  loan  to  O'Neil  &  Doyle,  and  that  the 
only  writing  or  contract  made  by  the  defendant,  relating  to  the 
loan,  was  the  agreement  mentioned  in  the  petition.  The  cause 
was  tried  by  the  court  sitting  as  a  jury,  and  the  verdict  and  judg- 
ment were  rendered  for  the  plaintiff. 

Whether  the  loans  were  made,  and  in  what  manner,  were  ques- 
tions of  fact,  and  the  verdict  and  finding  of  the  court  below  in 
that  regard  is  conclusive  here.  So  far  as  refusing  instructions 
asked  for  the  defendant  is  concerned,  we  see  no  ground  for  in- 
terference. Those  already  given  at  his  instance  covered  the 
material  points  in  the  case  and  were  sufficiently  favorable. 

The  second  instruction  given  for  the  plaintiff  is,  I  think,  un- 
objectionable. If,  after  the  loan  was  made,  defendant  had  in- 
formation thereof,  and  with  full  knowledge  approved  of  what 
the  plaintiff  had  done  in  the  premises  and  assented  thereto,  this 
would  amount  to  a  ratification,  and  he  would  be  bound  thereby. 
But,  under  the  pleading,  the  main  issue  presented  is  as  to  the 
real  character  of  the  writing  addressed  by  the  defendant  to  the 
plaintiff.  The  view  of  the  plaintiff  is  that  it  is  an  original,  pri- 
mary undertaking — an  absolute  promise,  binding  the  defendant, 
without  any  notice  of  acceptance.  On  the  other  hand,  the  de- 
fendant contends  that  it  is  nothing  more  than  a  guaranty,  and 


CENTRAL  SAVINGS  BANK  v.  SHINE.  191 

that,  to  impose  any  obligation  on  the  defendant,  notice  of  ac- 
ceptance was  indispensably  necessary. 

The  first  and  third  instructions  given  by  the  court  for  the 
plaintiff  proceed  upon  the  theory  that  the  writing  was  an  orig- 
inal promise,  and  so  treat  it,  and  declare  that  if  the  plaintiff 
loaned  the  sum  to  O'Neil  &  Co.,  in  pursuance  of  the  writing, 
then  it  was  entitled  to  recover.  The  instructions  wholly  dis- 
pense with  any  notice  of  acceptance  to  be  given  to  the  defend- 
ant, and  hold  the  writing  to  be  a  binding  contract  as  soon  as 
acted  upon  by  the  plaintiff,  whether  the  defendant  was  ever 
apprised  of  that  fact  or  not. 

There  is  a  marked  difference  between  an  overture  or  propo- 
sition  to  guaranty  and  simply  a  contract, of  suretyship.  The 
one  is  a  contingent  liability,  the  other  is  an  actual  undertak- 
ing. The  surety  is  bound  with  his  principal  as  an  original 
promisor;  he  is  a  joint  debtor  with  his  principal  from  the  very 
inception  of  the  agreement,  and  his  obligation  continues  until 
full  payment  is  made.  An  indulgence  by  the  creditor  will  not 
absolve  him,  for  his  liability  is  absolute,  and  he  is  bound  to 
know  of  his  principal's  default.  But  the  contract  of  a  guar- 
antor is  his  separate,  independent  contract.  It  is  not  a  joint 
engagement  with  the  principal  to  do  a  thing.  It  is  in  the 
nature  of  a  warranty  that  some  one  else  shall  do  a  certain  thing 
or  act,  and  the  guarantor  is  responsible  only  for  the  default  or 
failure  of  his  principal.  A  surety,  being  a  joint  contractor, 
may  be  sued  with  his  principal ;  a  guarantor  cannot  be. 

The  great  weight  of  authorities,  including  the  decisions  in 
this  State,  establish  the  proposition  that,  as  the  original  con- 
tract with  the  principal  is  not  the  contract  of  the  guarantor, 
the  creditor  is  bound  to  give  him  notice  if  he  intends  to  hold 
him  responsible.  The  counsel  for  the  plaintiff  have  cited  cases 
to  show  that  no  notice  is  necessary,  and  that  the  guarantor  is 
bound  whenever  the  creditor  receives  his  proposition  and  acts 
on  it;  but  the  law  of  this  State  is  settled  otherwise.  That  the 
paper,  addressed  by  the  defendant  to  the  plaintiff,  was  simply 
an  overture  or  proposition,  instead  of  a  direct  or  absolute  un- 
dertaking, seems  to  be  sufficiently  plain.  He  says,  in  substance, 
that  hearing  that  O'Neil  &  Co.  could  use  some  additional  cash, 
over  and  above  the  amount  already  had  of  the  plaintiff,  he 
would  thank  the  president  of  the  plaintiff  to  submit  to  the  board 
if  they  would  lend  the  firm  $15,000,  and  he  would  hold  him- 


192  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

I         self  responsible  for  that  amount;    but,  if  the  plaintiff  could 
not  conveniently  make  the  advance,  he  should  feel  obliged  to 
*  JKx  lk  /   procure  it  elsewhere.  (fThis  was  nothing  but  the  submission  of 
f  i    a  proposition.     The  defendant  did  not  know  whether  it  would 
/    be  accepted  or  not,  and  until  he  was  notified  of  its  acceptance 
he  obviously  could  not  tell  anything  about  the  nature  or  cer- 
tainty of  its  liability ))  This,  it  appears  to  me,  is  the  fair  and 
correct  interpretation  of  the  instrument;    and  the  decisions  in 
this  State  and  in  other  courts,  which  we  have  followed,  have 
so  construed  similar  writings,  and  held  that  notice  of  acceptance 
was  necessary  to  Ox.  the  responsibility  of  the  guarantor. 

In  the  case  of  Smith  v.  Anthony,  5  Mo.,  504,  Smith  addressed 
to  Anthony  the  following  letter: 

"Col.  Wm.  Anthony:  Dear  Sir—Win.  Mitchell,  Jr.,  will 
probably  call  on  you  to  purchase  your  horse;  and,  should  you 
conclude  to  sell,  you  can  do  so.  Take  his  note,  and  I  will  be 
responsible  for  the  payment  on  his  return. 

Respectfully,  ZENAS  SMITH." 

Anthony  sold  Mitchell  his  horse,  and  Mitchell  took  him  to 
Alabama,  and  returned;  and,  failing  to  make  payment,  suit 
was  brought  against  Smith,  and  it  was  held  that  before  Anthony 
could  recover  he  must  prove  that  he  gave  Smith  notice  that  he 
had  sold  on  the  faith  of  the  guaranty,  and  that  he  looked  to 
him  for  payment. 

In  Rankin  v.  Childs,  9  Mo.  676,  McCourtney  applied  to  Ran- 
kin  to  purchase  lumber  for  building  a  ferry-boat.  R-ankin  re- 
fused to  credit  him  without  security.  McCourtney  mentioned 
the  name  of  Childs  as  security,  and  he  was  accepted  as  suffi- 
cient. A  few  days  after  McCourtney  presented  a  bill  of  the 
lumber  in  Childs'  handwriting,  at  the  foot  of  which  was  writ- 
ten: 

"Messrs.  Rankin  will  furnish  the  above  bill  as  soon  as  pos- 
sible, and  I  will  order  what  more  I  may  want  for  my  boat  in  a 
short  time.  JAMES  MCCOURTNEY." 

"I  hereby  guaranty  the  payment  of  the  above  bill.  January 
29,  1842.  WM.  CHILDS." 

It  was  in  evidence  that  the  lumber  was  delivered,  and  that, 
while  the  boat  was  being  built,  Childs  was  frequently  present 
as  a  visitor,  but  took  no  part  in  the  matter.  In  an  action 


CENTRAL  SAVINGS  BANK  v.  SHINE.  193 

against  Childs,  it  was  held  that  his  contract  was  not  a  direct 
promise,  but  a  mere  guaranty,  and,  to  hold  him  liable,  notice 
should  have  been  given  of  the  acceptance  of  the  guaranty. 

In  Douglass  v.  Reynolds,  7  Pet.  113,  a  letter  was  addressed 
by  the  defendant  to  the  plaintiff  in  the  following  words: 

"Gentlemen — Our  friend,  Mr.  Chester  Haring,  to  assist  him 
in  business,  may  require  your  aid  from  time  to  time,  either  by 
acceptance  or  indorsement  of  his  paper,  or  advances  in  cash. 
In  order  to  save  you  from  harm  in  so  doing,  we  do  hereby 
bind  ourselves,  severally  and  jointly,  to  be  responsible  to  you 
at  any  time  for  a  sum  not  exceeding  $8,000,  should  the  said 
Chester  Haring  fail  to  do  so." 

It  was  held  this  was  a  guaranty,  and  that,  to  hold  the  guar- 
antors liable,  they  were  entitled  to  notice  of  its  acceptance. 

This  is  now  and  has  long  been  the  firmly  established  doctrine 
in  the  supreme  court  of  the  United  States.  Reynolds  v.  Doug- 
lass, 12  Pet.  497 ;  Russell  v.  Clark,  7  Cranch  69 ;  Edmondston 
v.  Drake,  5  Pet.  624;  Lee  v.  Dick,  10  id.  482. 

In  Maine,  the  following  instrument  was  construed  in  the  same 
way: 

"Messrs.  W.  &  G.  Tuckerman:  Gentlemen — For  the  bill  of 
goods  which  Mr.  Charles  B.  Prescott  bought  of  you  on  the  6th 
inst.,  I  hold  myself  responsible  to  you  for  payment  agreeably 
to  the  contract  made  with  him;  and  I  will  hold  myself  respon- 
sible for  any  goods  which  you  may  sell  him,  provided  the 
amount  does  not  exceed  at  any  time  $500."  This  was  decided 
to  be  a  guaranty,  and  as  the  plaintiff  had  not  given  notice  of 
its  acceptance  in  the  first  instance,  nor  of  the  delivery  of  the 
goods  under  it  subsequently,  he  could  not  succeed  in  his  action. 
Tuckerman  v.  French,  7  Me.  115.  A  similar  decision  was  made 
in  the  case  of  Bradley  v.  Gary,  8  id.  234. 

The  question  was  decided  in  the  same  way,  on  essentially  the 
same  state  of  facts,  in  Craft  v.  Isham,  13  Conn.  28;  Oakes  v. 
Weller,  13  Vt.  106;  S.  C.,  16  id.  63;  Dowry  v.  Adams,  22  id. 
166 ;  Babcock  v.  Bryant,  12  Pick.  133 ;  Mussey  v.  Rayner,  22 
id.  223.  In  all  these  cases  the  courts  hold  that  notice  of  ac- 
ceptance is  an  essential  element,  without  which  a  guaranty  of 
future  advances  cannot  rise  higher  than  a  mere  proposal  or 
offer,  ncr  ascend  to  the  rank  of  a  binding  agreement. 

Mr.  Parsons  sums  up  the  rule,  as  deduced  and  extracted  from 

the  weight  of  authority,  that  where  there  is  a  guaranty  for 

is  


194  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

future  operations,  perhaps  for  one  of  uncertain  amount,  and 
offered  by  letter,  there  should  then  be  a  distinct  notice  of  ac- 
ceptance, and  also  a  notice  of  the  amount  advanced  upon  the 
guaranty  itself.  2  Pars.  Cont.  (5th  ed.)  13. 

The  reason  which  underlies  the  principle  of  notice  is  that  the 
guarantor  may  know  distinctly  his  liability,  and  have  the  means 
of  arranging  his  relations  with  the  party  in  whose  favor  the 
guaranty  is  given,  and  take  from  him  security  or  indemnity. 
While  New  York  and  some  few  of  the  other  States  have  decided 
that  notice  of  acceptance  is  unnecessary  to  bind  the  guarantor, 
still  the  contrary  doctrine  is  ruled  in  our  own  courts  and  the 
national  courts,  and  a  large  majority  of  the  courts  of  other 
States. 

Messrs.  Hare  &  Wallace,  in  their  edition  of  Leading  Cases, 
say,  that,  notwithstanding  the  objections  which  may  be  made 
to  the  doctrine  which  makes  notice  essential  to  complete  the 
obligation  of  prospective  and  contingent  guaranties,  it  has  been 
transplanted  from  the  courts  of  the  United  States  into  many 
of  the  State  tribunals,  and  is  now  well-settled  law  in  New  Eng- 
land, Pennsylvania,  Ohio,  Missouri,  Kentucky,  Alabama,  and 
some  other  parts  of  the  Union.  2  Am.  Lead.  Gas.  (4th  ed.)  73. 

It  was  formerly  held  that  notice  of  an  intention  to  accept 
and  act  under  the  guaranty  was  an  obligation  of  the  commer- 
cial rather  than  the  common  law,  and  that  it  must  be  given 
immediately,  or,  at  all  events,  without  unnecessary  delay.  But 
the  cases  of  Douglass  v.  Reynolds,  supra,  and  The  Louisville 
Manuf.  Co.  v.  Welch,  10  How.  461,  are  limited  to  a  declaration 
that  notice  must  be  given  within  a  seasonable  or  reasonable  time 
after  what  is  called  "acceptance."  And  the  latter  decision 
establishes  not  only  that  a  reasonable  notice  of  what  is  done 
under  the  guaranty  will  be  sufficient,  but  also  that  no  delay  in 
-giving  it  will  be  a  bar  to  the  action,  unless  it  is  productive  of 
some  injury  to  the  guarantor. 

The  better  opinion,  I  am  inclined  to  think,  is  that  a  general 
averment  of  notice  is  sufficient;  and  the  question  whether  it 
be  reasonable,  under  all  the  circumstances  of  the  case,  is  one 
of  evidence  which  should  be  left  to  the  jury  under  proper  in- 
structions from  the  court.  Lawrence  v.  McCalmont,  2  How.  426 ; 
Louisville  Manuf.  Co.  v.  Welch,  supra;  Williams  v.  Staton,  5 
Sm.  &  M.  347 ;  Walker  v.  Forbes,  25  Ala.  139. 

For  the  error  of  the  court  in  giving  the  first  and  third  in- 


MONTGOMERY  v.  KELLOGG.  195 

structions  for  the  plaintiff,  the  judgment  must  be  reversed  and 
the  cause  remanded.    The  other  judges  concur. 

Shine  having  died  since  the  submission  of  this  cause,  the 
clerk  will  enter  up  the  judgment  as  of  the  last  term  nunc  pro 
tune. 


MONTGOMERY  v.  KELLOGG.     1870. 
43  Miss.  486;  5  Am.  Rep.  508. 

"Action  on  a  guaranty.    The  opinion  states  the  ease. 
SIMRALL,  J.    Suit  was  brought  by  Kellogg  &  Sandusky,  com- 
mercial partners,  on  the  following  writing,  to-wit: 

Prairie  Place,  1st  June,  1866. 
Messrs.  Kellogg  &  Sandusky: 

Gentlemen. — Mr.  H.  C.  Coody  proposes  to  purchase  some  sup- 
plies of  you,  payable  out  of  the  first  proceeds  of  his  crop.  In 
case  you  should  let  him  have  them,  I  will  see  the  amount  of  his 
account  with  you  paid,  as  he  may  agree  with  you,  to  the  amount 
of  $400,  or  less,  if  he  should  purchase  less. 

Yours,  etc. 

ALEX  MONTGOMERY. 

The  several  questions  made  in  this  court  arise  out  of  the  rul- 
ings of  the  circuit  court,  in  overruling  the  defendant's  demur- 
rer to  the  declaration,  in  the  granting  and  refusing  of  instruc- 
tions to  the  jury,  and  in  denying  the  motion  for  a  new  trial. 

1st.  It  is  maintained  by  the  plaintiff  in  error  that  he  had  no 
notice  or  no  sufficient  notice  of  the  acceptance  of  the  letter  of 
credit  or  guaranty  by  Kellogg  &  Sandusky. 

2d.  No  sufficient  and  timely  notice  of  the  default  made  by 
H.  C.  Coody  in  the  payment  for  the  goods  taken  up  by  him 
with  Kellogg  &  Sandusky,  and  the  non-averment  or  insufficient 
statement  of  these  facts  in  the  declaration,  make  it  obnoxious 
to  demurrer. 

The  allegation  in  the  declaration  is,  "of  all  which  said  prem- 
ises the  defendant  had  due  notice,  to-wit:  on,"  etc.  In  Willis 
v.  Staten,  5  S.  &  M.  353,  the  averment  was  "of  all  which  the 
said  defendant  afterward  had  due  notice."  The  suit  was  upon 
a  letter  of  credit,  for  a  liability  to  be  incurred  on  its  faith. 
It  was  held  that  the  allegation  of  notice  was  sufficient. 


196  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

The  important  inquiries  are:  What,  if  any,  notice  of  the 
acceptance  of  the  guaranty  was  the  guarantor  entitled  to  ?  And 
what  notice  of  the  default  made  by  Goody  in  paying  for  the 
goods?  And  was  the  law  of  the  case  properly  laid  before  the 
jury  in  the  instructions  of  the  court?  In  Thrasher  v.  Ely,  2 
S.  &  M.  147,  the  doctrine  is  recognize^  that  (if  the  guaranty  is 
of  a  sgecifie  easting  ^mand^s  a  pr^missor^ no,te  or  Qtfoer 
evidence  of  debt,  then  no  notice  of  default  in  payment  on  the 
part  of  the  principal  debtor  is  required.  In  such  case,  the 
guarantor  knows  precisely  what  he  undertakes  and  the  measure 
of  his  responsibility.  The  principle  seems  to  be,  that  if  the 
guaranty  is  absolute  in  its  terms,  definite  as  to  amount  and  ex- 
tent, notice  is  dispensed  with. 

But  if  the  guaranty  be  for  future  advances,  credits  or  pay- 
ments, it  is  the  duty  of  the  party  making  the  advances  to  give 
notice  to  the  guarantor  of  his  acceptance,  and  of  his  consent  to 
make  the  advances  on  the  faith  of  the  guaranty.  This  is  very 
clearly  settled  as  the  rule  in  the  supreme  court  of  the  United 
States.  Burrell  v.  Clarke,  7  Oanch  69;  Edmundson  v.  Drake, 
5  Peters,  629;  Douglas  v.  Reynolds,  7  Peters  113;  Lee  v.  Dick, 
10  Peters,  482;  Adams  v.  Jones,  12  Peters,  207;  Reynolds  v. 
Douglas,  12  Peters,  497. 

If  the  engagement  be  to  make  advances  on  future  contingen- 
cies, which  may  or  may  not  happen,  in  addition  to  the  general 
notice  of  acceptance  of  the  guaranty,  and  a  purpose  to  act  on 
its  faith  and  credit,  it  may  be  necessary  also  to  advise  the  guar- 
antor of  the  occurrence  of  the  contingencies  and  the  advances 
made,  for  otherwise  he  might  not  know  whether  any  use  were 
made  of  the  guaranty,  and  might,  because  thereof,  lose  oppor- 
tunity to  obtain  indemnity  from  the  principal  debtor.  Crumer 
v.  Higginson,  1  Mason,  323. 

In  Douglas  v.  Reynolds,  already  cited,  it  was  declared  in  ref- 
erence to  a  continuing  guaranty  for  acceptances,  indorsements 
and  credits,  that  it  was  but  reasonable,  when  the  whole  trans- 
actions were  ended,  notice  of  the  amount  claimed  from  the  guar- 
antor should  be  given  within  a  reasonable  time  afterward. 

The  purpose  of  the  notice  is  that  the  guarantor  may  at  once 
set  about  securing  himself  against  loss.  When  the  letter  of 
credit,  therefore,  is  continuing,  and  indefinite  as  to  amount, 
the  reason  is  stronger  for  a  prompt  notice  of  a  default  in  the 
principal  debtor,  and  its  amount.  The  principles  which  have 


MONTGOMERY  v.  KELLOGG.  197 

been  stated  and  illustrated  in  the  adjudications  of  the  supreme 
court  of  the  United  States  have  been  accepted  here  and  recog- 
nized. 4  How.  231 ;  5  S.  &  M.  347.  The  character  of  Montgom- 
ery's  letter  of  credit,  or  guaranty,  entitled  him  to  notice^that 
it  was  accepted  by  the  plaintiffs,  and  that  they  would  act  under 
it;  and  also,  after  the  transaction  was  closed,  and  the  debt 
became  due  from  Goody,  that_he  had  failed  fc_.inaikfl"  paymqtKt- 
And  this  last  information  must  be  communicated  within  a  rea- 
sonable time  after  default  made,  unless,  indeed,  there  was  some 
reason  potent  enough  to  relieve  of  the  duty  of  imparting  notice. 
For  it  should  be  borne  in  mind  that  the  object  of  the  informa- 
tion is  to  enable  the  guarantor  to  protect  and  save  himself  from 
loss.  If  notice,  by  no  possibility,  could  be  of  service  to  him, 
as  where  the  debtor  was  absolutely  and  hopelessly  insolvent, 
then  it  seems  it  may  be  dispensed  with.  It  must  be  observed, 
also,  that  the  same  promptness  is  not  exacted,  in  giving  notice, 
as  the  law  merchant  demands  of  the  dishonor  of  commercial 
paper.  The  latter  is  of  strict  right,  and  whilst  letters  of  credit, 
or  of  guaranty,  are  of  commercial  origin,  and,  of  consequence, 
have  drawn  to  their  construction  and  import  the  principles  of 
commercial  law,  they  stand,  as  to  this  matter,  on  a  broader 
ground  than  negotiable  paper.  Generally,  if  the  debtor  was  in- 
solvent when  the  debt  became  due,  and  has  ever  since  so  con- 
tinued, no  notice  to  the  guarantor  is  necessary — not  even  a  de- 
mand of  payment  of  the  debtor  when  the  debt  became  due. 
Warrington  v.  Furbor,  8  East  R.  242;  Van  Wirt  v.  Wilkins, 
3  Barn.  &  Cress.  439-447. 

We  will  refer  now  to  the  testimony,  and  see  what  evidence 
went  to  the  jury  as  to  notice  of  acceptance  and  notice  of  de- 
fault. Robert  Goody  deposed  that  H.  C.  Goody  applied  to  Kel- 
logg &  Sandusky  to  furnish  him  with  supplies;  they  refused 
unless  the  defendant,  Montgomery,  would  guarantee  payment. 
Mr.  Kellogg,  of  the  firm,  wrote  the  letter  of  guaranty,  which 
they  required  Montgomery  to  sign  before  they  would  open  the 
account.  The  paper  was  handed  to  Judge  Montgomery,  who 
signed  it.  It  was  then  taken  to  Kellogg  &  Sandusky.  About 
the  time  of  opening  the  account,  and  after  Montgomery  had 
knowledge  of  the  credit,  he  asked  witness  if  goods  were  got  on 
the  faith  of  this  paper,  witness  answered  affirmatively.  At 
Montgomery's  house,  about  the  time  they  were  fairly  picking 
cotton,  and  before  disposing  of  any  cotton  Montgomery  said  he 


198  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

was  in  receipt  of  a  letter,  stating  that  Goody's  account  was  due 
and  unpaid,  and  asking  what  arrangement  was  made  for  pay- 
ment. Montgomery  had  notice  within  ten  days  after  the  ac- 
count was  opened. 

H.  C.  Goody  says  that  Kellogg  &  Sandusky  agreed  to  supply 
him  goods  on  the  guaranty  of  Montgomery.  Demand  of  pay- 
ment of  the  account  was  made  on  Goody,  shortly  after  it  was 
due,  and  a  letter  written  by  the  book-keeper  to  Montgomery, 
notifying  him  of  non-payment. 

The  testimony  on  behalf  of  the  defendant  does  not  agree  in 
several  particulars — as  to  date  of  notice  of  default  particularly. 
The  testimony  was  quite  enough  to  justify  the  jury  in  the  con- 
clusion that  Montgomery  received  notice  that  the  goods  would 
be  advanced  on  his  guaranty.  The  notice,  whether  of  accept- 
ance or  of  default  in  payment,  need  not  be  given  in  any  pre- 
cise form,  nor  in  writing,  but  may  be  inferred  from  facts  and 
circumstances  in  the  evidence.  Reynolds  v.  Douglas,  12  Peters, 
496 ;  Oaks  v.  Weller,  16  Vt.  70. 

What  is  a  reasonable  time  for  the  performance  of  an  act  is, 
by  the  authorities,  rather  referred  to  the  court  as  a  question  of 
law  than  of  fact  to  the  jury.  In  the  administration  of  justice, 
there  are  many  cases  where  certain  general  propositions  can  be 
laid  down,  but  when  they  come  to  be  applied  they  encounter 
a  variety  of  incidents  unforeseen  and  not  before  contemplated, 
and  in  reference  to  which  no  general  rule  could  beforehand  be 
prescribed;  the  court  must  exert  its  best  discretion  and  judg- 
ment in  determining  what  the  law  must  be  deemed  to  be  as  ap- 
plicable thereto.  Such  is  the  inevitable  result  of  all  things  de- 
pending on  human  foresight. 

Precedents  often  cannot,  on  account  of  the  endless  variety 
and  complication  of  transactions,  dissimilar  often  to  any  that 
have  occurred  in  any  previous  case,  be  referred  to  as  aiding 
in  the  formation  of  a  judgment  on  a  proposition  like  this. 
Therefore,  the  great  propriety  of  the  suggestion  of  Judge  STOBY 
in  the  case  of  "Wilds  v.  Savage,  1  Story,  22,  that  it  is  difficult, 
and  perhaps  dangerous,  to  attempt  to  lay  down  any  general 
rule  as  to  what  is  reasonable  notice,  leaving  each  case  to  stand 
on  its  own  distinguishing  and  special  features. 

In  the  cases  cited  from  7  Peters,  113,  and  10  id.  482,  it  was 
said  the  guarantor  must  have  notice  of  the  amount  for  which 
he  is  held,  as  well  as  default  of  the  principal  debtor  in  a  rea- 


MONTGOMERY  v.  KELLOGG.  199 

sonable  time.  But  it  is  not  attempted  to  define  what  would  be 
reasonable  time.  In  Howe  v.  Nichols,  22  Me.  178,  the  court 
expressed  an  appreciation  of  the  intrinsic  difficulty,  if  not  im- 
possibility, of  laying  down  any  precise  rule. 

As  respects  negotiable  paper,  the  custom  of  merchants  and 
the  decisions  of  the  courts  have  given  precision  and  definiteness 
as  to  what  shall  constitute  reasonable  notice  to  drawers  and 
indorsers.  But,  as  we  have  already  said,  the  same  strictness 
does  not  apply  in  favor  of  the  guarantor. 

Looking  to  the  special  facts  in  this  case,  we  are  of  opinion 
that  Montgomery  had  notice,  within  reasonable  time,  of  the 
non-payment  by  the  principal  debtor.  For  the  fundamental 
principle  as  the  basis  of  the  rules  on  this  subject  is,  did  the 
want  of  notice  or  delay  to  give  it  operate  injuriously  to  the 
guarantor?  If  so,  he  is  to  be  released  according  to  the  circum- 
stances pro  tanto  or  in  toto.  1  Story,  22;  22  Me.  179.  Testi- 
mony was  before  the  jury,  to  the  effect  that  whilst  Goody  was 
gathering  his  cotton,  and  before  any  of  it  was  sold,  Montgom- 
ery had  knowledge  that  the  account  had  not  been  paid,  and 
that  he  was  looked  to  for  payment.  Referring  to  the  letter  of 
credit,  the  first  sentence  reads  thus:  "Mr.  H.  C.  Goody  pro- 
poses to  purchase  some  supplies,  payable  out  of  the  first  proceeds 
of  his  crop."  The  cotton  was  the  fund  out  of  which  payment 
was  to  be  made.  It  was  because  of  Montgomery's  confidence 
in  this  resource  that  he  incurred  the  liability.  Having  notice 
before  any  of  the  cotton  was  sold,  it  was  in  time  to  enable  him, 
if  he  could,  to  obtain  indemnity,  or  see  to  the  application  of  the 
cotton  to  the  debt.  It  is  not  shown  that  he  has  lost  anything, 
or  any  opportunity  to  save  himself  from  loss,  by  not  receiving 
earlier  advice. 

The  letter  of  Montgomery,  in  evidence  to  the  jury,  does  not 
claim  exemption  from  liability  on  the  want  of  notice;  but 
rather  that  the  goods  were  furnished  E.  Goody,  for  whom  he 
was  not  surety,  and  a  claim  that  H.  C.  Goody  must  be  first 
sued,  as  defendant  was  only  surety.  The  instructions  to  the 
jury  accord  with  these  views.  Perhaps  the  third  instruction 
granted  on  the  prayer  of  the  defendant  is  broader  than  would 
be  warranted  by  the  authorities,  and  was  certainly  as  favorable 
to  the  defendant  as  he  could  ask;  but  as  to  this  we  are  called 
•upon  to  give  no  opinion. 

It  is  complained  that  the  court  erred  in  refusing  a  prayer 


2CO  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

in  these  words:  "If  the  jury  believe,  from  the  evidence,  that 
the  defendant  has  incurred  any  liability,  it  is  as  surety  for  H. 
C.  Goody,  the  principal,  and  that  said  defendant  gave  written 
notice  to  the  creditors,  plaintiffs  in  this  action,  to  commence 
and  prosecute  legal  proceedings  against  said  principal  debtor, 
and  the  plaintiffs  refused  to  do  so,  to  the  next  term,  to  be  held 
thirty  days  after  giving  notice,  and  to  prosecute  the  same  to 
effect,  the  defendant  is  discharged  from  liability,"  etc.  The 
principle  embraced  in  this  prayer  has  no  application  of  fitness 
to  the  facts  of  the  case,  and  therefore  the  court  was  right  in 
withholding  it  from  the  jury.  On  the  acceptance  of  the  guar- 
anty and  notice  of  non-payment  by  Goody,  the  liability  of  Mont- 
gomery became  fixed  and  absolute,  with  an  immediate  right  of 
action  against  him — an  original  liability. 

The  decisions  of  the  circuit  court  on  the  several  points  raised 
in  that  court  being  in  accord  with  these  views,  we  affirm  the 
judgment.  Judgment  affirmed. 


RAPELYE    v.   BAILEY.     1820. 
3  Conn.  438;  8  Am.  Dec.  199. 

Assumpsit.  The  declaration  contained  seven  counts.  The 
first  count  alleged  a  promise  by  defendant,  Roger  Bailey,  to  pay 
to  plaintiffs,  absolutely  the  value  of  certain  goods  furnished  to 
his  brother  Roswell.  The  second  count  alleged  a  promise  to 
pay  at  the  time  agreed  upon  by  Roswell,  of  which  time,  it  was 
alleged,  defendant  had  notice.  The  third  count  alleged  a  prom- 
ise in  a  similar  form.  The  fourth  count  was  on  a  quantum 
meruit;  the  fifth,  like  the  last,  alleging  a  delivery  to  the  defend- 
ant; the  sixth  count  was  for  goods  sold  and  delivered  to  the 
defendant.  The  seventh  count  set  forth  the  promise  to  pay 
for  goods  furnished  Roswell,  and  alleged  further  that  the  latter 
had  given  his  promissory  note  for  the  value  of  the  goods,  but 
that  he  had  become  insolvent  and  the  note  remained  unpaid,  of 
which  defendant  was  averred  to  have  had  notice.  Plea,  non- 
assumpsit.  The  written  promise  of  the  defendant  to  pay  for 
the  articles  furnished  appears  from  the  opinion.  The  defend- 
ant requested  an  instruction  to  the  jury  that  the  letter  of  credit 
was  not  a  direct  and  original  undertaking  on  his  part,  and  that 


RAPBLYB  v.  BAILEY. 


201 


he  was  not  liable  without  an  averment  and  proof  of  special 
notice.  The  judge  refused  this  instruction,  and  charged  that 
the  letter  was  a  direct  and  original  undertaking,  on  the  part  of 
the  defendant.  Verdict  for  the  plaintiff,  and  motion  for  a 
new  trial. 

PETERS,  J.  The  declaration  contains  seven  counts.  The 
object  of  the  pleader  in  ringing  so  many  changes  on  a  plain, 
concise  written  contract,  is  not  apparent.  I  mention  this  cir- 
cumstance merely  to  express  the  regret  I  feel,  when  called  to 
witness  a  departure  from  the  simplicity  of  our  ancient  practice, 
so  much  better  calculated  to  administer  speedy  and  substantial 
justice,  than  the  labyrinths  of  British  models,  which  are  as  use- 
less to  us  as  the  titles,  as  the  robes  and  the  wigs  of  their  rever- 
end judges. 

To  support  this  declaration  the  plaintiffs  give  in  evidence  a 
letter  from  the  defendant  in  these  words:  "Messrs.  Rapelye 
&  Purdy:  Gentlemen,  my  brother,  Roswell,  is  wishing  to  go 
into  business  in  New  York,  by  retailing  goods  in  a  small  way. 
Should  you  be  disposed  to  furnish  him  with  such  goods  as  he 
may  call  for  from  three  hundred  to  five  hundred  dollars  worth, 
I  will  hold  myself  accountable  for  the_ payment,  should  he  not 
pay7  as  you  and  he  shall  agree.  Roger  Bailey."  This  the  de- 
fendant contended  was  a  collateral,  and  not  a  direct  undertak- 
ing, and  did  not  entitle  the  plaintiffs  to  recover,  without 
averring  and  proving  a  special  notice,  and  requested  the  judge 
so  to  instruct  the  jury.  But  the  judge  informed  them  that  this 
letter  was  "a  direct  and  an  original  undertaking,"  meaning  as 
I  understood  the  motion,  that  it  rendered  the  defendant  liable 
as  principal,  and  not  as  a  guarantor.  By  the  terms  of  this 
letter  Roswell  Bailey  was  to  become  the  purchaser  and  debtor, 
and  the  defendant  a  mere  surety,  and  his  contract,  when  ac- 
cepted, was  literally  and  strictly  a  guaranty.  "I  will,"  said 
the  defendant,  "hold  myself  accountable  for  the  payment, 
should  he  not  pay  as  you  and  he  shall  agree."  The  acceptance 
of  this  proposition,  the  amount  of  credit  given  under  it,  the  time 
and  terms  of  payment  agreed  on,  were  never  made  known  to  the 
defendant  until  the  commencement  of  this  suit.  The  averment 
"whereof  the  defendant  had  due  and  legal  notice,"  isjsufficient, 
it  is  no  more  than  lict  seapius  requisitus, .and  would 
cause  of  demurrer,  and  not  of  a  new  trial,  were  it  not  for  the 
rule,  that  such  defects  are  cured  by  verdict.  But  where  notice 


202  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

and  request  are  by  law  necessary,  there  the  general  averment 
will  not  be  sufficient,  but  it  must  be  particularly  set  forth,  that 
the  court  may  judge  whether  the  notice  or  request  was  suffi- 
cient: 1  Chit.  PI.  319;  Wallis  v.  Scott,  1  Str.  88.  Thus  in 
Pack  v.  Methold,  Poph.  160,  the  opinion  of  the  court  was  strong- 
ly, "that  the  plaintiff  ought  to  have  alleged  the  request  spe- 
cially, and  certainly  in  time  and  place,  because  the  fact  is 
traversable."  In  Peel  v.  Tatlock,  1  Bos.  &  P.  419,  EYRE,  C.  J., 
seems  to  have  been  of  opinion  that  in  guaranties  for  good 
behavior,  notice  of  any  embezzlement  ought  to  be  given  in  a 
reasonable  time;  and  in  Russell  v.  Clark,  7  Cranch,  69,  it  was 
distinctly  holden  by  the  supreme  court  of  the  United  States, 
that  if  the  contract  in  that  case  had  been  a  guaranty,  it  would 
have  been  the  duty  of  the  plaintiff  to  give  immediate  notice  to 
the  defendant  of  the  extent  of  his  engagement.  I,  therefore, 
think  that  the  judge  ought  to  have  directed  the  jury  to  find  for 
the  defendant,  unless  it  was  proved  that  he  had  such  notice. 

If  this  reasoning  be  correct,  a  new  trial  must  be  granted. 
But  the  motion  presents  other  grounds.  The  letter  in  question 
proves  neither  count  in  the  declaration.  I  take  the  law  to  be 
settled,  that  where  there  is  an  express  contract,  it  extinguishes 
the  implied  one,  Shelton  v.  Darling,  2  Conn.  435.  In  Cutter  v. 
Powell,  6  T.  R.  320,  324,  Lord  Kenyon  says,  "that  where  the 
parties  have  come  to  an  express  contract,  none  can  be  implied, 
has  prevailed  so  long  as  to  be  reduced  to  an  axiom  in  the  law." 
And  the  defendant  ought  to  have  notice  by  the  declaration  that 
he  is  sued  upon  it:  Weston  v.  Downes,  Doug.  23.  And  every 
such  contract  must  be  proved  as  laid:  Gwinnett  v.  Phillips,  3 
T.  R.  643,  646;  Bristow  v.  Wright,  Doug.  640;  Anon.,  1  Ld. 
Raym.  735;  Saxton  v.  Johnson,  10  Johns.  418;  Thompson  v. 
Jameson,  1  Cranch,  282;  Phil.  Ev.  168. 

The  letter  in  question  furnishes  evidence  of  an  express  eon- 
tract;  and,  therefore,  does  not  support  a  general  indebitatus 
assumpsit,  as  laid  in  the  fourth,  fifth  and  sixth  counts.  It  is 
a  collateral  undertaking  to  pay,  if  the  debtor  did  not;  and, 
therefore  did  not  authorize  the  plaintiffs  to  make  their  charge  to 
the  defendant  directly,  as  laid  in  the  third  count.  The  two 
first  counts  being  special,  must  be  proved  as  laid.  In  the  first 
it  is  averred  that  the  defendant  promised  to  be  answerable  for 
the  money  at  the  proper  time  of  payment.  But  the  defendant 
said,  "I  will  hold  myself  accountable  for  the  payment,  should 


LEE  v.  DICK.  203 

he  not  pay  as  you  and  he  shall  agree."  In  the  second  count  it 
is  averred,  "that  the  defendant  promised  that  said  money 
should  be  regularly  paid  as  said  Roswell  should  agree,"  abso- 
lutely. But  the  promise  is  conditional. 

The  seventh  count  not  only  sets  out  a  contract  variant  from 
the  guaranty,  but  a  waiver  or  extinguishment  thereof  by  a  new 
obligation  from  the  principal  debtor.  This,  according  to  the 
civil  law  whence  most  of  our  principles  relative  to  contracts  are 
derived,  is  a  discharge  of  the  guaranty.  Thus  saith  Pothier, 
Treatise  on  Obligations,  part  2,  c.  6;  "As  suretyship  is  an  ac- 
cessory obligation  to  that  of  the  principal  debtor,  the  extinction 
of  the  principal  obligation  carries  with  it  the  extinction  of  the 
suretyship  also.  Likewise,  the  security  is  discharged  by  the 
novation  that  is  made  of  the  debt ;  for  the  security  can  no  longer 
be  bound  for  the  first  debt  for  which  he  became  security  of  the 
debtor,  since  it  no  longer  exists,  having  been  extinguished  by 
the  novation."  Though  this  is  not  a  common  law  authority, 
* '  the  greatest  portion  of  it, ' '  according  to  Sir  William  Jones,  ' '  is 
law  at  Westminster  as  well  as  at  Orleans."  The  same  doctrine 
is  laid  down  by  Domat,  lib.  3,  tit.  4,  sec.  5.  "If  the  debt  is 
innovated  between  the  creditor  and  the  debtor,  without  the 
surety's  obliging  himself  anew,  his  obligation  does  not  subsist 
any  longer." 

I  advise  a  new  trial. 

The  other  judges  were  of  the  same  opinion,  except  HOSMER, 
C.  J.,  who  having  been  absent  when  the  case  was  argued,  gave 
no  opinion. 

New  trial  to  be  granted. 


LEE  v.  DICK.    1836. 
10  Peters  482. 

The  case  is  stated  in  the  opinion  of  the  court. 

THOMPSON,  C.  J.,  delivered  the  opinion  of  the  court. 

This  case  comes  up  on  a  writ  of  error  from  the  circuit  court 
of  the  United  States  for  West  Tennessee.  It  was  a  special 
acticn  on  the  case,  on  a  guarantee  given  by  the  plaintiff  in  error 
in  favor  of  Nightingale  and  Dexter.  The  declaration  is  spe- 


204  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

cial,  stating  that  the  defendant  in  the  court  below,  by  his  guar- 
antee bearing  date  the  24th  of  September  in  the  year  1832, 
directed  and  addressed  to  the  plaintiffs  below,  requested  them 
to  accept  the  draft  of  Nightingale  and  Dexter  for  the  amount 
of  $2,000,  and  thereby  promised  to  guarantee  the  punctual  pay- 
ment of  the  same  to  that  amount;  and  avers  that  Nightingale 
and  Dexter  afterwards,  on  the  5th  of  October,  1832,  drew  a  bill 
on  the  plaintiffs  below  for  $4,250;  and  that,  confiding  in  the 
promise  of  the  defendant,  they  accepted  the  same,  etc.  The 
declaration  contains  a  count  alleging  an  agreement  by  the 
defendant  to  guarantee  the  payment  of  $2,000,  part  of  the 
$4,250;  with  the  necessary  averments  to  charge  the  defendants 
with  the  payment  of  the  $2,000. 

The  defendant  pleaded  the  general  issue  and  upon  the  trial 
of  the  cause  the  plaintiffs  produced  the  following  evidence: 

Memphis,  September  24,  1832. 
"Messrs.  N.  and  J.  Dick  &  Co. 

"Gentlemen:  Nightingale  and  Dexter,  of  Maury  county, 
Tennessee  wish  to  draw  on  you  at  six  or  eight  months  date. 
You  will  please  accept  their  draft  for  $2,000,  and  I  do  hereby 
guarantee  the  punctual  payment  of  it.  Very  respectfully,  your 
obedient  servant, 

SAMUEL  B.  LEE." 

Nashville,  October  5,  1S32. 
"Exchange  for  $4,250.00. 

"Six  months  after  date  of  this  first  of  exchange,  (second  un- 
paid), pay  to  H.  E.  W.  Hill,  or  order,  4,250  dollars — cents,  value 
received  and  charge  the  same  to  account  of  yours,  etc. 

"NIGHTINGALE  &  DEXTER, 
"To  N.  and  J.  Dick  and  Co.,  New  Orleans." 

The  plaintiff  also  offered  in  evidence  the  following  letter  of 
the  defendant,  Samuel  B.  Lee;  which  letter  was  written  upon 
the  same  sheet  of  paper  with  the  guarantee,  but  on  different 
parts  of  it : — 

"Memphis,  September  24,  1832. 

"Mr.  P.  B.  Dexter. 

"Dear  Sir:  Yours  of  the  15th  instant  came  to  hand  in  due 
time.  I  was  absent,  or  should  have  answered  it  sooner.  I 
left  Mount  Pleasant  sooner  than  I  had  expected  when  I  saw  you 
last.  I  learned  that  my  presence  was  wanted  at  Savannah,  and 
put  o.  p.  h.  I  had  calculated  to  get  along  with  business  with- 


LEE  v.  DICK.  205 

out  having  any  thing  to  do  with  drawing  bills  or  with  the  bank ; 
but  there  is  no  cash  in  this  quarter,  and  our  bills  at  the  East 
are  falling  due,  and  I  have  no  other  alternative  but  to  draw 
for  what  funds  I  am  compelled  to  have,  and  may,  during  the 
winter,  (should  I  go  largely  into  the  cotton  market),  wish  to 
draw  for  a  considerable  amount  I  have  no  objections  to  guar- 
antee your  bill,  except  it  might  affect  my  own  operations.  I 
however,  send  a  guarantee  for  $2,000,  which  you  can  use  if  you 
choose.  The  balance,  I  have  no  doubt,  your  friend,  Mr.  Wat- 
son, will  do  for  you.  I  would  cheerfully  do  the  whole  amount, 
but  expect  to  do  business  with  that  house,  and  do  not  wish  to  be 
cramped  in  my  own  operations.  Spun  thread,  also  coarse  home- 
spun are  in, good  demand.  My  compliments  to  Mrs.  and  Miss 
Nightingale.  Your  friend, 

SAMUEL  B.  LEE.'* 

It  was  agreed  by  the  counsel,  that  the  bill  of  exchange  and 
letter  should  go  to  the  jury,  and  their  effect,  etc.,  be  charged 
upon  by  the  court.  The  plaintiff  proved  that  N.  and  J.  Dick 
and  Co.  accepted  the  above  bill,  upon  the  faith  of  the  said  guar- 
antee, and  that  they  had  paid  it,  and  gave  notice  to  the  defend- 
ant that  they  looked  to  him  for  the  money.  The  court  charged 
the  jury,  that  if  the  defendant  intended  to  guarantee  a  bill  of 
exchange  to  be  drawn  for  $2,000,  he  would  not  be  liable  for  a 
bill  drawn  for  upwards  of  $4,000.  But  if  he  intended  to  guar- 
antee $2,000  of  a  bill  to  be  drawn  for  a  larger  amount,  then  he 
would  be  liable  for  the  $2,000.  That  the  court  was  of  opinion 
that  the  letter  accompanying  the  guarantee  was  admissible  in 
evidence,  to  explain  whether  the  guarantor  meant  to  guarantee 
a  bill  for  $2,000,  or  only  $2,000  in  a  bill  for  a  larger  amount.  The 
court  also  charged  the  jury  that  no  notice  by  N.  and  J.  Dick  and 
Co.  to  the  defendant,  that  they  intended  to  accept,  or  had  ac- 
cepted, and  acted  upon  this  guarantee,  was  necessary.  To 
which  opinion  of  the  court  the  defendant  excepted. 

The  questions  arising  upon  this  case  are : 

1st.  Whether  this  evidence  will  warrant  the  conclusion,  that 
the  defendant  intended  to  guarantee  $2,000  in  a  bill  to  be 
drawn  for  a  larger  sum. 

2dly.  Whether  N.  and  J.  Dick  and  Co.  were  bound  to  give 
notice  to  the  'defendant  that  they  intended  to  accept,  or  had 
accepted  and  acted  upon  the  guarantee. 

A  guarantee  is  a  mercantile  instrument,  and  to  be  construed 
according  to  what  is  fairly  to  be  presumed  to  have  been  the 


206  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

understanding  of  the  parties,  without  any  strict  technical  nicety. 
If  the  guarantee  stood  alone,  unexplained  by  the  letter  which 
accompanied  it,  it  would  undoubtedly  be  limited  to  a  specific 
draft  for  $2,000,  and  would -not  cover  that  amount  in  a  bill  for 
a  larger  sum ;  but  the  latter  which  accompanied  it  fully  justifies 
the  conclusion  that  the  defendant  undertook  to  guarantee  $2,000 
in  a  draft  for  a  larger  amount.  The  letter  and  guarantee  were 
both  written  by  the  defendant,  on  the  same  sheet  of  paper,  bear 
the  same  date,  and  may  be  construed  together  as  constituting 
the  guarantee.  7  Cranch,  89.  This  letter  is  obviously  in  answer 
to  one  received  from  Dexter,  one  of  the  firm  of  Nightingale 
and  Dexter;  for  he  says,  "Your  letter  of  the  15th  instant  came 
to  hand  in  due  time,  etc.  I  have  no  objection  to  guarantee  your 
bill,  except  it  might  affect  my  own  operations.  I,  however,  send 
a  guarantee  for  $2,000,  which  you  can  use  if  you  choose. ' '  This 
was  clearly  in  answer  to  an  application  to  guarantee  a  larger 
sum;  and  admits  of  no  other  construction  than  that  he  should 
have  no  objection  to  guarantee  the  whole  sum  he  requested,  if  he 
was  not  under  apprehensions  that  it  would  affect  his  own  opera- 
tions. The  bill  not  having  been  drawn  until  the  5th  of  October, 
eleven  days  thereafter,  the  letter  must  have  referred  to  a  bill 
he  wished  to  draw.  But  this  is  not  all.  He  adds:  "The  bal- 
ance I  have  no  doubt  your  friend,  Mr.  Watson,  will  do  for  you. ' ' 
The  balance !  What  balance  could  this  mean  ?  Clearly  the  bal- 
ance between  the  $2,000  for  which  he  sent  the  guarantee,  and 
the  amount  of  the  sum  mentioned  in  the  letter  for  which  he 
wanted  a  guarantee.  And  again  he  says :  "I  would  cheerfully 
do  the  whole  amount,  but  expect  to  do  business  with  that  house, 
and  do  not  wish  to  be  cramped  in  my  own  operations."  The 
whole  amount!  What  amount  is  here  referred  to ?  This  admits 
of  no  other  answer,  than  that  it  was  the  amount  of  the  sum 
mentioned  in  the  letter  he  had  written  to  Dexter,  in  which 
he  requested  a  guarantee.  The  opinion  of  the  circuit  court, 
therefore,  upon  the  construction  of 'the  guarantee  was  correct. 

The  next  question  is  whether  the  plaintiffs  were  bound  to  give 
notice  to  the  defendant,  that  they  intended  to  accept  or  had 
accepted  and  acted  upon  this  guarantee.  It  is  to  be  observed, 
that  this  guarantee  was  prospective,  it  looked  to  a  draft  there- 
after to  be  drawn;  and  this  question  is  put  at  rest  by  the  deci- 
sions of  this  court.  The  case  of  Russel  v.  Clark's  Executors,  7 
Cranch,  91,  was  a  bill  in  chancery  to  recover  a  sum  of  money 


LEE  v.  DICK.  207 

upon  a  guarantee  alleged  to  grow  out  of  several  letters  written 
by  Clark  and  Nightingale  to  Russel.  The  court  say:  "We 
cannot  consider  these  letters  as  constituting  a  contract  by  which 
Clark  and  Nightingale  undertook  to  render  themselves  liable 
for  the  engagements  of  Robert  Murray  and  Co.  to  Nathaniel 
Russel.  Had  it  been  such  a  contract,  it  would  certainly  have 
been  the  duty  of  the  plaintiff  to  have  given  immediate  notice 
to  the  defendant  of  the  extent  of  his  engagements."  Although 
the  point  now  in  question  was  not  precisely  the  one  before  the 
court  in  that  case,  as  there  was  no  contract  or  guarantee  made 
out,  yet  it  is  laid  down  as  a  settled  and  undisputed  rule.  The 
case  of  Edmondson  v.  Drake  and  Mitchell,  5  Pet.  624,  was  an 
action  founded  on  a  letter  of  credit  given  by  Edmondson  to 
Castello  and  Black,  as  follows:  "Gentlemen:  The  present  is 
intended  as  a  letter  of  credit  in  favor  of  my  regarded  friends, 
Messrs.  J.  and  T.  Robinson,  to  the  amount  of  $40  or  50,000; 
which  sum  they  wish  to  invest  through  you  in  the  purchase  of 
your  produce.  Whatever  engagements  these  gentlemen  may 
enter  into  will  be  punctually  attended  to." 

On  the  trial,  the  court  was  requested  to  instruct  the  jury, 
that  in  order  to  make  the  defendant  liable  to  the  plaintiff  under 
the  contract,  they  were  bound  by  the  law  merchant  to  give  him 
due  notice.  Upon  this  prayer  the  court  was  divided,  and  the 
instruction  was  not  given;  and  this  court  decided  that  the 
instruction  ought  to  have  been  given.  The  court  said  it  would 
indeed  by  an  extraordinary  departure  from  that  exactness  and 
precision  which  peculiarly  distinguish  commercial  transactions, 
which  is  an  important  principle  in  the  law  and  usages  of  mer- 
chants, if  a  merchant  should  act  on  a  letter  of  this  character,  and 
hold  the  writer  responsible  without  giving  notice  to  him  that  he 
had  acted  on  it.  The  authorities  on  this  point,  say  the  court, 
unquestionably  establish  this  principle.  And  again,  the  case  of 
Douglas  et  al.  v.  Reynolds  et  al.  1  Pet.  125,  was  an  action  upon 
a  guarantee;  and  the  court  was  requested  to  instruct  the  jury, 
that,  to  enable  the  plaintiff  to  recover  on  the  letter  of  guarantee, 
they  must  prove  that  notice  had  been  given  in  a  seasonable  time 
after  said  letter  of  guarantee  had  been  accepted  by  them,  to  the 
defendant,  that  the  same  had  been  accepted.  This  instruction 
the  court  below  refused  to  give ;  and  this  court  say  the  instruc- 
tion asked  was  correct,  and  ought  to  have  been  given.  That  a 
party  giving  a  letter  of  guarantee  has  a  right  to  know  whether 


208  ABSOLUTE]  AND  CONDITIONAL  GUARANTIES. 

it  is  accepted,  and  whether  the  person  to  whom  it  is  addressed 
means  to  give  credit  on  the  footing  of  it  or  not.  It  may  be  most 
material,  not  only  as  to  his  responsibility,  but  as  to  future 
rights  and  proceedings.  It  may  regulate,  in  a  great  measure, 
his  course  of  conduct,  and  his  exercise  of  vigilance  in  regard  to 
the  party  in  whose  favor  it  is  given.  Especially,  it  is  important 
in  case  of  a  continuing  guarantee,  since  it  may  guide  his  judg- 
ment in  recalling  or  suspending  it.  This  last  remark  by  no 
means  warrants  the  conclusion  that  notice  is  not  necessary  in  a 
guarantee  of  a  single  transaction ;  but  only  that  the  reason  of  the 
rule  applies  more  forcibly  to  a  continuing  guarantee.  It  is 
unnecessary,  after  such  clear  and  decided  authorities  in  this 
court  on  this  point,  to  fortify  it  by  additional  adjudications. 
We  are  not  aware  of  any  conflict  of  decisions  on  this  point ;  and 
if  there  are,  we  see  no  reason  for  departing  from  a  doctrine  so 
long  and  so  fully  settled  in  this  court. 

"We  do  not  mean  to  lay  down  any  rule  with  respect  to  the 
time  within  which  such  notice  must  be  given.  The  same  strict- 
ness of  proof  is  not  necessary  to  charge  a  party  upon  his  guar- 
antee, as  would  be  necessary  to  support  an  action  upon  the  bill 
itself;  when,  by  the  law  merchant,  a  demand  upon  and  refusal 
by  the  acceptors  must  be  proved  in  order  to  charge  any  other 
party  upon  the  bill.  8  East,  245.  There  are  many  cases  where 
the  guarantee  is  of  a  specific  existing  demand  by  a  promissory 
note  or  other  evidence  of  a  debt;  and  such  guarantee  is  given 
upon  the  note  itself,  or  with  a  reference  to  it  and  recognition 
of  it,  when  no  notice  would  be  necessary.  The  guarantor,  in 
such  cases,  knows  precisely  what  he  guarantees,  and  the  extent 
of  his  responsibility;  and  any  further  notice  to  him  would  be 
useless.  14  Johns.  349 ;  20  Ib.  365.  But  when  the  guarantee  is 
prospective,  and  to  attach  upon  future  transactions,  and  the 
guarantor  uninformed  whether  his  guarantee  has  been  accepted 
and  acted  upon  or  not,  the  fitness  and  justice  of  the  rule  requir- 
ing notice  is  supported  by  considerations  that  are  unanswerable. 

We  are,  accordingly,  of  opinion  that  the  circuit  court  erred 
in  deciding  that  notice  was  not  necessary,  and  that  the  judgment 
must  be  reversed. 


DAVIS  S.  M.  CO.  v.  RICHARDS.  209 

DAVIS   SEWING   MACHINE    COMPANY  v.   RICHARDS. 

1885. 

115  U.  8.  524;  6  Sup.  Ct.  Rep.  173. 

In  error  to  the  supreme  court  of  the  District  of  Columbia. 

GRAY,  J.  This  was  an  action,  brought  in  the  supreme  court 
of  the  District  of  Columbia,  upon  a  guaranty  of  the  perform- 
ance by  one  John  W.  Poler  of  a  contract  under  seal,  dated 
December  17,  1872,  between  him  and  the  plaintiff  corporation, 
by  which  it  was  agreed  that  all  sales  of  sewing  machines  which 
the  corporation  should  make  to  him  should  be  upon  certain 
terms  and  conditions,  the  principal  of  which  were  that  Poler 
should  use  all  reasonable  efforts  to  introduce,  supply  and  sell 
the  machines  of  the  corporation,  at  not  less  than  its  regular 
retail  prices,  throughout  the  District  of  Columbia  and  the  Coun- 
ties of  Prince  George  and  Montgomery,  in  the  State  of  Mary- 
land, and  should  pay  all  indebtedness  by  account,  note,  indorse- 
ment or  otherwise,  which  should  arise  from  him  to  the  corpora- 
tion under  the  contract,  and  should  not  engage  in  the  sale  of 
sewing  machines  of  any  other  manufacture ;  and  that  the  corpo- 
ration, during  the  continuance  of  the  agency,  should  sell  its 
machines  to  him  at  a  certain  discount,  and  receive  payment 
therefor  in  a  certain  manner;  and  that  either  party  might  ter- 
minate the  agency  at  pleasure. 

The  guaranty  was  upon  the  same  paper  with  the  above  con- 
tract, and  was  as  follows : 

"For  value  recejy^d,  we  hereby  guarantee  to  the  Davis  Sew- 
ing Machine  Company,  of  Watertown,  New  York,  the  full  per- 
formance of  the  foregoing  contract  on  the  part  of  John  Yvr. 
Poler,  and  the  payment  by  said  John  W.  Poler  of  all  indebted- 
ness, by  account,  note,  indorsement  of  notes  (including  renewals 
and  extensions)  or  otherwise,  to  the  said  Davis  Sewing  Machine. 
Company,  for  property  sold  to  said  John  W.  Poler,  under  this 
contract  to  the  amount  of  Three  Thousand  ($3,000)  Dollars. 

"Dated  Washington,  D.  C.,  this  17th  day  of  December,  1872. 

"A.   ROTHWELL, 

"A.  C.  RICHARDS-" 

Under  the  guaranty  were  these  words:  "I  consider  the  above 
sureties  entirely  responsible.  Washington,  Dec.  19,  1872. 

"J.  T.  STEVENS." 

14 


210  ABSOLUTE  AND  CONDITIONAL  GUARANTIES. 

At  the  trial  the  above  papers,  signed  by  the  parties,  were 
given  in  evidence  by  the  plaintiff,  and  there  was  proof  of  the 
following  facts:  On  December  17,  1872,  at  Washington,  the 
contract  was  executed  by  Pdler,  and  the  guaranty,  after  being 
so  signed,  were  delivered  by  the  defendants  to  Poler,  and  by 
Poler  to  Stevens,  the  plaintiff's  attorney,  and  by  Stevens  after- 
wards forwarded,  with  his  recommendation  of  the  sureties,  to 
the  plaintiff  at  Watertown  in  the  State  of  New  York,  and  the 
contract  there  executed  by  the  plaintiff.  The  plaintiff  after- 
wards delivered  goods  to  Poler  under  the  contract,  and  he  did  not 
pay  for  them.  The  defendants  had  no  notise  of  the  plaintiff's 
execution  of  the  contract,  or  acceptance  of  the  guaranty,  and  no 
notice  or  knowledge  that  the  plaintiff  had  furnished  any  goods 
to  Poler  under  the  contract  or  upon  the  faith  of  the  guaranty, 
until  January,  1875,  when  payment  therefor  was  demanded  by 
the  plaintiff  of  the  defendants  and  refused.  At  the  time  of  the 
signing  of  the  guaranty,  the  plaintiff  had  furnished  no  goods  to 
Poler,  and  the  negotiations  then  pending  between  the  plaintiff 
and  Poler  related  to  prospective  transactions  between  them. 

The  court  instructed  the  jury  as  follows :  "It  appearing,  at 
the  time  the  defendants  signed  the  guaranty  on  the  back  of  the 
contract  between  plaintiff  and  Poler,  the  plaintiff  had  not  exe- 
cuted the  contract  or  assented  thereto,  and  that  the  contract 
and  guaranty  related  to  prospective  dealings  between  the 
plaintiff  and  Poler,  and  that  subsequently  to  the  signing 
thereof  by  the  defendants  the  attorney  for  the  plaintiffs 
approved  the  responsibility  of  the  guarantors  and  sent  the  con- 
tract to  "Watertown,  New  York,  to  the  plaintiff,  which  subse- 
quently signed  it,  and  no  notice  having  been  given  by  the  plain- 
tiff to  the  defendants  of  the  acceptance  of  such  contract  and 
guaranty,  and  that  it  intended  to  furnish  goods  thereon  and 
hold  the  defendants  responsible,  the  plaintiff  cannot  recover, 
and  the  jury  should  find  for  the  defendants." 

A  verdict  was  returned  for  the  defendants,  and  judgment 
rendered  thereon,  which  on  exceptions  by  the  plaintiff  was 
affirmed  at  the  general  term,  and  the  plaintiff  sued  out  this  writ 
of  error,  pending  which  one  of  the  defendants  died  and  his 
executor  was  summoned  in. 

The  decision  of  this  case  depends  upon  the  application  of  the 
rules  of  law  stated  in  the  opinion  in  the  recent  case  of  Davis 


DAVIS  S.  M.  CO.  v.  RICHARDS.  211 

v.  Wells,  104  U.  S.  159,  in  which  the  earlier  decisions  of  this 
court  upon  the  subject  are  reviewed. 

Those  rules  may  be  summed  up  as  follows:  A  contract  of 
guaranty,  like  every  other  contract,  can  only  be  made  by  the 
mutual  assent  of  the  parties.  If  the  guaranty  is  signed  by  the 
guarantor  at  the  request  of  the  other  party,  or  if  the  latter 's 
agreement  to  accept  is  contemporaneous  with  the  guaranty  or  if 
the  receipt  from  him  of  a  valuable  consideration,  however  small, 
is  acknowledged  in  the  guaranty,  the  mutual  assent  is  proved, 
and  the  delivery  of  the  guaranty  to  him  or  for  his  use  complete 
the  contract.  But  if  the  guaranty  is  signed  by  the  guarantor 
/without  any  previous  request  of  the  other  party,  and  in  his 
absence,  for  no  consideration  moving  between  them  except 
future  advances  to  be  made  to  the  principal  debtor,  the  guaranty 

1    is  in  legal  effect  an  offer  or  proposal  on  the  part  of  the  guar- 
antor, needing  an  acceptance  by  the  other  party  to  complete  the 

V.  contract. 

The  case  at  bar  belongs  to  the  latter  class.  There  is  no  evi- 
dence of  any  request  from  the  plaintiff  corporation  to  the  guar- 
antors or  of  ajiy  consideration  moving  from  it  and  received  or 
acknowledged  by  them  at  the  time  of  their  signing  the  guar- 
anty. The  general  words  at  the  beginning  of  a  guaranty, 
"value  received,"  without  stating  from  whom,  are  quite  as  con- 
sistent with  a  consideration  received  by  the  guarantor  from  the 
principal  debtor  only.  The  certificate  of  the  sufficiency  of  the 
guarantors,  written  by  the  plaintiff's  attorney  under  the  guar- 
anty, bears  date  two  days  later  than  the  guaranty  itself.  The 
plaintiff's  original  contract  with  the  principal  debtor  was  not 
executed  by  the  plaintiff  until  after  that.  The  guarantors  had 
no  notice  that  their  sufficiency  had  been  approved,  or  that  their 
guaranty  had  been  accepted,  or  even  that  the  original  contract 
had  been  executed  or  assented  to  by  the  plaintiff,  until  long 
afterward,  when  payment  was  demanded  of  them  for  goods 
supplied  by  the  plaintiff  to  the  principal  debtor. 

Judgment  affirmed. 


212  CHANGE  OF  CONTRACT. 


CHAPTER  VI. 

CHANGE  OF  CONTRACT. 

a.  Any  material  change  in  the  contract  betiveen  the  principal 
debtor  and  his  creditor,  whether  to  the  disadvantage  of  the 
surety  or  not,  will  release  the  latter  unless  he  consents  to 
the  change. 

HALL   v.    PEYSER.     1879. 
126  Mass.  195. 

Contract  on  the  following  instrument  in  writing,  dated  Octo- 
ber 2,  1876,  and  signed  by  the  defendant;  "In  consideration  of 
one  dollar  to  me  paid  by  George  F.  Hall,  of  Boston,  and  for  the 
purpose  of  securing  a  credit  with  him  for  Isidore  Patterson,  I 
hereby  guarantee  the  full  and  punctual  payment  to  George  F. 
Hall  of  all  indebtedness  which  said  Isidore  Patterson  may  incur 
for  purchase  of  goods,  wares  and  merchandise  from  said  George 
F.  Hall,  whether  such  purchase  shall  be  made  on  credit  or  other- 
wise, or  secured  by  note  or  otherwise,  without  requiring  notice 
of  any  kind  with  respect  thereto.  This  guaranty  to  be  an  open 
and  continuing  one  until  revoked  by  notice  in  writing  from  me ; 
it  being  understood  that  her  liability  thereunder  shall  not  at 
any  one  time  exceed  one  thousand  dollars.  Answer,  a  general 
denial. 

At  the  trial  in  the  superior  court,  before  DEWEY,  J.,  without 
a  jury,  it  was  admitted  that,  on  October  10,  1877,  there  was  due 
to  the  plaintiff  for  merchandise  previously  sold  and  delivered  by 
him  to  Patterson,  the  sum  of  $53.32.  The  plaintiff  offered  evi- 
dence that,  prior  to  October  10,  the  firm  of  Sayre  &  North,  of 
New  York,  had  delivered  goods  at  different  times  to  Patterson  to 
be  by  her  manufactured  for  them  and  returned  to  them;  that 
they  were  to  pay  her  for  her  services  in  manufacturing  the 
goods;  that  she  did  not  return  the  goods,  but  disposed  of  the 
same  for  her  own  use  and  benefit,  and  thereafter,  about  October 
10,  they  requested  her  to  return  the  goods,  at  the  same  time 
charging  her  with  having  wrongfully  disposed  of  them  for  her 
own  benefit;  that  she  then  requested  them  to  make  a  bill  of  the 
goods  to  the  plaintiff;  that  they  did  so,  and  the  plaintiff  made  a 
bill  of  the  same  to  Patterson;  and  that  this  arrangement  was 
made  after  the  delivery  of  all  the  goods  to  Patterson  by  Sayre 


X 
UNITED   STATES  v.  BOECKER.  213 

&  North.     The  plaintiff  admitted  that  he  had  never  had  posses- 
sion of  the  goods.     These  goods  amounted  to  $576.50. 

Upon  this  evidence  the  judge  ruled  that  the  plaintiff  could 
only  recover  for  the  goods  actually  sold  and  delivered  by  him 
to  Patterson;  and  found  for  the  plaintiff  in  the  sum  of  $53.32 
and  interest.  The  plaintiff  alleged  exceptions. 

AMES,  J.  The  transaction  described  in  this  bill  of  exceptions 
was  a  mere  evasion  of  the  plain  meaning  of  the  defendant's  con- 
tract. There  was  no  sale  by  Sayre  &  North  to  the  plaintiff. 
The  goods  never  were  his  property,  or  in  his  possession,  and  he 
never  sold  them  to  Patterson.  It  was  correctly  ruled  that  the 
plaintiff  was  not  entitled  to  recover  anything  beyond  the  charge 
for  merchandise  delivered  before  October  10,  1877. 

Exceptions  overruled. 


UNITED  STATES  v.  BOECKER.    1874. 
21  Wall  652. 

Error  to  the  circuit  court  for  the  District  of  Maryland. 

The  United  States  sued  Henry  Boecker,  principal,  and  C. 
Schorr  and  P.  Altevoght,  his  sureties,  in  a  distiller's  bond.  The 
bond  was  in  the  penal  sum  of  $6,000,  and  conditioned  that, 
whereas  the  said  Henry  "is  now,  or  intends,  on  and  after  the 
4th  day  of  May,  1869,  to  be  a  distiller  within  the  second  collec- 
tion district  of  the  State  of  Maryland,  to-wit,  at  the  corner  of 
Hudson  street  and  East  avenue,  situate  in  the  town  of  Canton, 
County  of  Baltimore  and  State  aforesaid;  now,  if  the  said 
Henry  shall  in  all  respects  faithfully  comply  with  all  the  provi- 
sions of  law  in  relation  to  the  duties  of  distillers"  etc.,  ''then 
this  obligation  to  be  void,  otherwise  it  shall  remain  in  full 
force." 

It  was  proved  upon  the  trial  that  Boecker  was  largely  in- 
debted to  the  United  States  "for  taxes  assessed  against  him  in 
respect  to  his  business  of  distilling,  carried  on  by  him  at  his 
distillery  at  the  corner  of  Hudson  and  Third  streets,  in  the  town 
of  Canton,  for  the  months  of  May,  June,  July,  August,  Septem- 
ber, October,  November,  and  December,  in  the  year  1869,  and 
that  the  said  taxes  remained  unpaid."  It  was  further  proved 
"that  no  distillery  at  any  other  place  was  carried  on  by  said 


214  CHANGE  OF  CONTRACT. 

Boecker,  and  that  there  was  not  any  distillery  at  the  corner  of 
Hudson  street  and  East  avenue,"  and  that  the  latter  place  was 
about  four  squares  from  the  former. 

The  defendants  Schorr  and  Altevoght  thereupon  prayed  the 
court  to  instruct  the  jury  that  if  they  "shall  find  from  the  evi- 
dence that  no  distillery  was  ever  carried  on  by  the  said  Boecker, 
at  the  corner  of  Hudson  street  and  East  avenue,"  "they  would 
find  their  verdict  for  the  defendants,  although  they  may  find 
that  said  Boecker  carried  on  a  distillery  at  some  other  place 
at  Canton,  and  for  his  operations  at  which  place  he  became 
indebted  in  this  suit." 

This  instruction  was  given.  The  United  States  excepted. 
The  jury  found  for  the  defendants,  and  judgment  being  entered 
accordingly,  the  case  was  brought  here. 

The  bond  was  taken  under  the  act  of  July  20th,  1868.  Ita 
provisions  bearing  upon  the  subject  are  as  follows: 

"Section  1.  Every  proprietor  or  possessor  of  a  still,  distil- 
lery, or  distilling  apparatus,  and  every  person  in  any  manner 
interested  in  the  use  of  any  such  still,  distillery,  or  distilling 
apparatus,  shall  be  jointly  and  severally  liable  for  the  taxes  im- 
posed by  law  on  the  distilled  spirits  produced  therefrom,  and 
the  tax  shall  be  a  first  lien  on  the  spirits  distilled,  the  distillery 
used  for  distilling  the  same,  the  stills,  vessels,  fixtures,  and  the 
tools  therein,  on  the  lot  or  tract  of  land  whereon  the  said  dis- 
tillery is  situated,  together  with  any  building  thereon,  from  the 
time  said  spirits  are  distilled  until  the  said  tax  shall  be  paid. 

"Section  6.  Every  person  engaged,  or  intending  to  be  en- 
gaged, in  the  business  of  a  distiller  or  rectifier,  shall  give  notice 
in  writing,  subscribed  by  him,  to  the  assessor  of  the  district 
within  which  said  business  is  to  be  carried  on,  stating  his  name 
and  place  of  residence,  and,  if  a  company  or  firm,  the  name  and 
place  of  residence,  of  each  member  thereof,  and  the  place  where 
such  business  is  to  be  carried  on,  and  whether  of  distilling  or 
rectifying;  and,  if  such  business  be  carried  on  in  a  city,  the 
residence  and  place  of  business  shall  be  indicated  by  the  name  of 
the  street  and  the  number  of  the  building. ' ' 

In  the  case  of  a  rectifier  the  notice  must  state  "the  precise 
location  of  the  premises  where  such  business  is  to  be  carried 
on,"  and  that  the  "establishment  is  not  within  six  hundred  feet 
of  the  premises  of  any  distillery, ' '  etc.  In  case  of  change  in  the 
location,  etc.,  of  a  distillery,  notice  in  writing  is  required  to  be 


UNITED  STATES  v.  BOECKER.  215 

given  to  the  assessor  or  his  assistant  within  twenty-four  hours. 
Every  notice  required  by  this  section  shall  be  "in  such  form, 
and  shall  contain  such  additional  particulars,  as  the  Commis- 
sioner of  Internal  Revenue  shall  from  time  to  time  prescribe 

Any  person  failing  or  refusing  to  give  such  notice  shall  pay  a 
penalty  of  $1,000,  and,  on  conviction,  shall  be  fined  not  less 
than  $100  nor  more  than  $2,000,  and  any  person  giving  a  false 
or  fraudulent  notice  shall  on  conviction,  in  addition  to  such 
penalty  or  fine,  be  imprisoned  not  less  than  sis.  months  nor  more 
than  two  years." 

Section  seven  prescribes  the  bond  to  be  given.  It  is  to  have 
two  sureties,  and  one  of  the  conditions  required  is  that  the  dis- 
tiller "will  not  suffer  the  lot  or  tract  of  land  on  which  the  dis- 
tillery stands,  or  any  part  thereof,  or  any  of  the  distilling  appa- 
ratus, to  be  incumbered  by  mortgage,  judgment,  or  other  lien 
during  the  time  in  which  he  shall  carry  on  said  business. ' ' 

Section  eight  enacts  that  the  bond  is  not  to  be  approved  un- 
less the  distiller  is  the  owner  in  fee,  unincumbered,  of  the  lot 
or  tract  of  land  on  which  the  distillery  is  situated,  or  unless  he 
files  with  the  assessor  the  written  consent  of  the  owner  of  the  fee 
and  of  any  incumbrance,  that  the  premises  may  be  used  for  the 
purpose  of  distilling  spirits,  subject  to  the  provisions  of  law,  and 
stipulating  that  the  lien  of  the  United  States  for  taxes  and  pen- 
alties shall  have  priority  over  such  incumbrance,  and  that,  in  case 
of  forfeiture  of  the  premises,  the  title  shall  vest  in  the  United 
States,  discharged  from  such  ineumbrance,  whatever  it  may  be. 

Section  twelve  forbids  the  use  of  any  still,  boiler,  or  other  ves- 
sel for  the  purpose  of  distilling  "within  six  hundred  feet  of  any 
premises  authorized  to  be  used  for  rectifying, ' '  and  declares  that 
the  offender  against  this,  or  either  of  the  other  prohibitions  con- 
tained in  this  section,  "shall,  on  conviction,  be  fined  $1,000,  and 
imprisoned  for  not  less  than  six  months  nor  more  than  two 
years,  in  the  discretion  of  the  court. ' ' 

Mr.  S.  F.  Field,  for  the  United  States,  the  plaintiff  in  error, 
argued  that  the  locality  where  the  distillery  was  intended  to  be 
placed,  described  in  the  bond,  was  immaterial,  and  that  the  sure- 
ties were  liable  for  the  defaults  of  their  principal  occurring 
where  the  distillery  was  situated,  in  all  respects  as  if  it  had 
been  located  at  the  place  named  in  the  bond. 

Messrs.  E.  0.  Hinkley  and  J.  V.  L.  Fintlay,  for  the  sureties, 
cited  numerous  authorities  to  show  that  sureties  were  bound  for 


216  CHANGE  OF  CONTRACT. 

nothing  whatever  but  that  for  which  they  agreed  to  be  bound, 
and  that  courts^  favored  them  in  the  construction  of  their  en- 
gagements. He  argued  accordingly  that  here  they  were  not 
liable  for  the  taxes. 

Mr.  Justice  SWAYNE,  having  stated  the  case,  delivered  the 
opinion  of  the  court,  as  follows: 

The  several  provisions  bearing  on  the  subject,  in  the  act  of 
July  20th,  1868,  under  which  the  bond  sued  on  in  this  case  was 
taken,  show  the  importance  attached  by  the  statute  to  the  place 
as  designated  in  the  notice  required  to  be  given  by  the  distiller 
before  commencing  business.  Here  the  bond,  it  is  to  be  pre- 
sumed, followed  the  notice.  The  designation  of  the  place  is 
made  important  to  the  distiller,  to  his  sureties,  and  to  the  gov- 
ernment, in  several  respects.  If  the  place  be  not  as  designated 
in  the  notice  the  distiller  is  outside  of  the  law  and  liable  to 
the  penalties  denounced  by  the  sixth  section.  If  it  be  within  six 
hundred  feet  of  premises  authorized  to  be  used  for  rectifying, 
he  is  liable  to  suffer  as  prescribed  in  the  eighth  section.  The 
premises  having  been  specified  in  the  notice,  the  surety,  before 
executing  the  bond,  and  the  assessor,  before  taking  it,  may  ex- 
amine and  determine  how  far,  in  the  event  of  liability  on  the 
part  of  the  principal,  the  property  would  be  available  as  secu- 
rity for  the  government  and  indemnity  for  the  surety. 

If  the  proposition  of  the  counsel  for  the  United  States  were 
sustained,  the  designation  of  the  place,  as  in  this  bond,  instead 
of  affording  a  limitation  and  a  safeguard  to  the  surety,  might 
prove  but  a  delusion  and  a  snare,  and  subject  him  to  liabilities 
which  he  could  not  have  foreseen,  and  to  the  hazard  of  which 
he  would  not  knowingly  have  exposed  himself.  In  such  cases, 
the  United  States  having  a  lien,  the  surety  is  entitled  to  the  bene- 
fit of  it.  He  might  be  willing  to  bind  himself  where  the  lien 
was  upon  one  piece  or  parcel  of  property,  and  unwilling  where 
it  was  upon  another.  His  ultimate  immunity  or  liability  might 
depend  wholly  upon  the  value  of  the  premises.  He  had  the  op- 
tion to  assume  the  risk  or  not.  This  element  may  have  controlled 
the  exercise  of  his  election. 

Viewing  the  subject  in  the  light  of  these  considerations,  we 
cannot  assent  to  the  view  expressed  by  the  counsel  for  the  gov- 
ernment. On  the  contrary,  we  think  this  term  of  the  bond  is*  of 
the  essence  of  the  contract.  It  is  hardly  less  so  than  the  amount 
of  the  penalty.  One  defines  the  place  where  the  liability  must 


UNITED   STATES  v.  BOECKER.  217 

arise,  the  other  the  maximum  of  that  liability  for  which  the 
sureties  stipulated  to  be  bound.  The  former  can  no  more  be 
held  immaterial  than  the  latter.  No  distillery  having  been  car- 
ried on  at  the  place  named,  the  contract  never  took  effect.  The 
event  to  which  it  referred  did  not  occur.  There  could  conse- 
quently be  no  liability  within  the  letter  or  meaning  of  the  con- 
tract. It  was  as  if  the  agreement  had  been  for  the  good  con- 
duct of  a  clerk  while  in  the  service  of  B.,  and  the  clerk  never 
entered  his  service,  but  entered  into  the  service  of  another.  Dis- 
tilling begun  and  carried  on  elsewhere  was  no  more  within  the 
obligation  of  the  sureties  than  if  it  had  been  begun  and  carried 
on  there  or  elsewhere  by  a  person  other  than  Boecker.  No  other 
place  than  that  named  is,  under  the  circumstances  of  this  case, 
within  the  letter,  spirit,  or  meaning  of  the  bond.  The  specifica- 
tion has  no  elasticity.  It  cannot  be  made  to  extend  to  the  local- 
ity where  the  distillery  here  in  question  was  placed.  In  Miller 
v.  Stewart  this  court  said:  "Nothing  can  be  clearer,  both  upon 
principle  and  authority,  than  the  doctrine  that  the  liability  of 
a  surety  is  not  to  be  extended  by  implication  beyond  the  terms 
of  his  contract.  To  the  extent,  and  in  the  manner,  and  under 
the  circumstances  pointed  out  in  his  obligation  he  is  bound,  and 
no  further.  ...  It  is  not  sufficient  that  he  may  sustain 
no  injury  by  a  change  in  the  contract,  or  that  it  may  even  be 
for  his  benefit.  He  has  a  right  to  stand  upon  the  very  terms 
of  his  contract,  and  if  he  does  not  assent  to  any  variation  of  it 
and  a  variation  is  made,  it  is  fatal." 

To  the  same  effect  is  Ludlow  v.  Simond.  There  is  no  more 
learned  and  elaborate  case  upon  the  subject. 

The  leading  English  case  is  Lord  Arlington  v.  Merricke. 

These  authorities  are  conclusive  of  the  case  before  us.  It  is 
needless  to  analyze  and  discuss  them.  Others,  without  number, 
maintaining  the  same  principle,  might  be  referred  to.  Many  of 
those  most  opposite  to  this  case  are  cited  in  the  argument  of 
the  counsel  for  the  defendants  in  error.  The  rules  of  the  com- 
mon law  upon  the  subject  are  as  old  as  the  Year  Books.  Those 
rules  were  doubtless  borrowed  from  the  earlier  Roman  jurispru- 
dence, known  as  the  civil  law.  They  obtain  throughout  the 
States  of  our  Union.  The  adjudications  everywhere  are  in  sub- 
stantial harmony. 

The  question  here  was  not  as  to  the  law  in  the  abstract,  but 
as  to  its  application  to  the  facts  of  the  case. 


218  CHANGE  OF  CONTRACT. 

A  careful  examination  has  satisfied  us  that  the  learned  judge 
upon  the  trial  below  instructed  the  jury  correctly. 

Judgment  affirmed- 

Mr.  Justice  BRADLEY  (with  whom  concurred  Justices  CLIF- 
FORD, DAVIS  and  STRONG)  dissenting: 

I  dissent  from  the  opinion  of  the  court  in  this  case.  It  seems 
to  me  that  it  has  a  tendency  to  cast  every  burden  on  the  gov- 
ernment and  to  unduly  relieve  the  sureties  of  the  distiller  from 
responsibility  for  his  acts.  By  the  sixth  section  of  the  act  of 
July  20th,  1868,  every  person  intending  to  be  engaged  in  the 
business  of  a  distiller  is  to  give  notice  in  writing  to  the  assessor 
of  the  district  within  which  such  business  is  to  be  carried  on, 
stating  his  name  and  place  of  residence,  and  the  place  where 
said  business  is  to  be  carried  on ;  and  if  in  a  city,  the  residence 
and  place  of  business  is  to  be  indicated  by  the  name  and  numBer 
of  the  street.  He  is  then,  by  the  seventh  section,  to  execute  a 
bond  with  at  least  two  sureties,  to  be  approved  by  the  assessor. 
Such  a  notice  and  such  a  bond  were  given  in  this  case.  The 
bond  recited,  in  the  preamble  to  the  condition,  the  fact  that  the 
distiller  intended  to  be  engaged  in  the  business  of  a  distiller 
within  the  second  collection  district  of  the  State  of  Maryland, 
to-wit,  at  the  corner  of  Hudson  Street  and  East  Avenue,  situate 
in  the  town  of  Canton,  county  of  Baltimore.  Then  followed  the 
terms  of  the  condition,  namely,  that  the  distiller  should  in  all 
respects  faithfully  comply  with  all  the  provisions  of  law,  etc., 
and  not  suffer  the  lot  on  which  the  distillery  stood  to  be  incum- 
bered,  etc.  Now  the  sureties  contend  that  if  the  distillery  is 
actually  established  on  a  different  lot  from  that  suggested  in 
the  recital,  though  only  across  the  street,  or  even  the  adjoining 
lot  on  the  same  side,  they  are  not  bound.  It  seems  to  me  that 
it  is  for  them,  and  not  for  the  government,  to  see  that  the  dis- 
tiller pursues  his  business  on  the  lot  which  he  gives  notice  to  the 
assessor  that  he  will  use  for  that  purpose.  They  are  the  guar- 
antors of  his  conduct  to  the  government,  and  not  the  government 
to  them.  If  after  starting  his  distillery  he  changes  its  location, 
or  after  giving  notice  of  the  location  he  changes  his  mind  and 
commences  business  on  another  lot,  the  sureties  ought  to  be 
bound  for  the  regularity  of  his  conduct.  If  he  should  not  carry 
on  business  in  the  designated  district,  but  in  a  dif- 
ferent one,  subject  to  the  jurisdiction  of  another  assessor,  to 
whom  the  bond  was  not  given,  the  result  might  be  different. 


NEFF  v.  HORNER.  219 

But  if  he  establishes  it  in  the  same  district,  the  sureties  ought 
to  be  liable.  The  condition  is  not  that  he  shall  comply  with  the 
law  only  on  that  particular  lot.  That  can  only  be  claimed  as 
an  inference  of  law.  But  does  such  an  inference  arise  in  this 
case?  The  fact  that  the  distiller  intended  to  pursue  his  busi- 
ness on  that  lot  is  mentioned,  it  is  true,  in  accordance  with  his 
notice.  But  this  is  no  part  of  the  substance  of  the  condition; 
the  substance  is  that  he  was  going  to  engage  in  the  business  of 
a  distiller  in  that  district,  and  the  sureties  guaranteed  his  com- 
pliance with  the  law.  Where  a  sheriff  or  marshal  is  elected  or 
appointed  for  a  particular  term,  a  bond  given  for  the  faithful 
discharge  of  his  duties  relates  by  implication  of  law  to  that  term 
alone ;  and  the  sureties  are  not  bound  for  a  subsequent  term  in 
case  of  his  re-election  or  reappointment.  This  is  so,  whether  the 
condition  recites  the  term  of  office  for  which  the  appointment 
was  made  or  not.  This  is  the  reasonable  inference  from  the 
whole  transaction.  But,  in  the  case  under  consideration,  the 
implication  of  law  and  the  reasonable  inference  is  that  the  sure- 
ties are  bound  for  the  conduct  of  their  principal,  though  he 
should  change  the  location  of  his  distillery  to  any  other  place 
within  the  district.  Otherwise  the  government  is  liable  to  be 
subjected  to  great  frauds.  It  is  the  duty  of  the  sureties,  rather 
than  that  of  the  government  officials,  to  see  that  no  change  is 
made  without  the  distiller's  pursuing  the  formalities  required 
by  the  law.  If  it  is  made  without  those  formalities,  there  would 
be  stronger  reason  for  holding  that  fact  of  itself  as  constituting 
a  violation  of  the  bond,  than  for  holding  that  it  discharges  the 
sureties  from  all  obligations  whatever. 


NEFF  v.  HORNER.    1870. 
63  Pa.  St.  327;  3  Am,  Rep.  555. 

Action  to  charge  the  sureties  on  a  promissory  note.    The  note 
was  as  follows: 

"$500.  November  13,  1865. 

"One  year  after  date  we,  or  either  of  us,  promise  to  pay  to 
Samuel  Horner  the  just  sum  of  $500  in  seven-thirties  for  value 
received  of  him,  whereunto  witness  our  hands  and  seals. 
^"Interest  to  be  paid  semi-annually. 

"JACOB  A.  PENNINGTON,     (L.S.)      "THOMAS  WILEY,     (L.S.) 
"JOHN  NEFF,  (L.S.)      "THOMAS  CURL."    (L.S.) 

"JOSEPH  DOUGHERTY,        (L.S.), 


220  CHANGE  OF  CONTRACT. 

The  words  "interest  to  be  paid  semi-annually  "  were  not  in 
the  note  when  the  sureties  signed  it;  but  Pennington,  the  prin- 
cipal, took  it  to  Horner,  who  refused  to  accept  unless  these  words 
were  inserted.  Pennington  -  then  wrote  the  words  in  the  note, 
at  the  same  time  stating  that  he  had  authority  to  do  so,  which 
was  untrue.  The  pleas  filed  were  non  est  factum,  nil  debet,  and 
payment  with  leave.  By  neglect  of  the  prothonotary  the  plea 
of  non  est  factum  was  omitted  from  the  trial  list  prepared  for 
the  judge,  and  the  trial  proceeded  as  if  this  plea  had  not  been 
filed.  While  the  court  was  charging  the  jury,  it  was  discovered 
that  the  plea  of  non  est  factum  was  actually  in,  and  the  court 
was  requested  to  take  notice  of  this,  but  refused  to  do  so,  because 
the  trial  had  been  conducted  on  different  pleas.  Verdict  for 
plaintiff  for  $503.37.  Defendants  appealed. 

AGNBW,  J.  It  seems  to  be  settled  that  a  voluntary  alteration 
of  a  bond,  note,  or  other  instrument  under  seal,  in  a  material 
part,  to  the  prejudice  of  the  obligor  or  maker,  avoids  it,  unless 
done  with  the  assent  of  the  parties  to  be  affected  by  it.  1 
Greenl.  Ev.,  §565;  Marshall  v.  Gougler,  10  S.  &  R.  164;  Bar- 
ringlon  et  al.  v.  Bank  of  Washington,  14  id.  422,  423;  Foust 
v.  Renno,  8  Barr,  378;  Henning  v.  Werkheiser,  id.  518,  n. ; 
Smith  v.  Weld,  2  id.  54.  Such  a  willful  act  differs  from  spolia- 
tion by  a  stranger,  or  accidental  alteration  done  through  mis- 
take, where  the  instrument  remains  effectual  in  law,  as  it  was 
before  alteration.  1  Greenl.  Ev.,  §§  566,  568. 

In  respect  to  bills,  notes  and  other  commercial  paper,  the  rule 
is  even  more  stringent,  the  law  casting  on  the  holder  the  burden 
of  disproving  any  apparent  material  alteration  on  the  face  of 
the  paper.  Stephens  v.  Graham,  7  S.  &  R.  505;  Simpson  v. 
Stackhouse,  9  Barr,  186;  Paine  v.  Edsell,  7  Har.  178;  Miller 
v.  Reed,  3  Casey,  244. 

The  only  Pennsylvania  case  that  seems  to  run  against  this 
strong  current  of  authority  is  Worrell  v.  Gheen,  3  Wright,  388, 
but  it  is  plainly  exceptional.  The  opinion  declares  on  the  gen- 
eral principle  strongly,  but  makes  the  case  an  exception  on  the 
ground  that  the  plaintiff  had  no  hand  in  the  alteration,  and 
because  the  case  being  stated  for  the  opinion  of  the  court,  they 
were  met  by  no  discrepancy  between  the  allegata  and  probata. 
How  far  the  grounds  of  distinction  may  be  deemed  satisfactory 
it  is  of  no  importance,  for  it  is  sufficient  that  the  case  is  made 
an  exception  expressly. 


NEFF  v.  HORNER.  221 

In  the  present  instance,  however,  the  plaintiff,  who  was  exam- 
ined on  his  own  behalf,  admitted  that  Pennington?  the  principal 
in  the  note,  made  the  addition  in  his  presence.     He  saw  him 
do  it.    He  would  not  take  the  note  till  Pennington  did  so.    The 
latter  said  he  had  authority  from  his  sureties,  but  this  was 
untrue.     The  alteration  was  not  accidental,  and  the  plaintiff, 
though  guiltless  of  the  fraud,  was  foolish  to  accept  a  note  he 
himself  saw  altered  by  the  principal  without  being  certain  he 
had  authority  to  bind  his  sureties.     The  alteration  was  mate- 
rial, for  it  added  interest  to  the  principal.     It  was  not  out  of 
the  way,  so  as  to  be  no  part  of  the  note,  for  its  position  at  the 
foot  of  the  note,  and  by  way  of  continuation,  would  have  bound 
the  sureties  to  the  payment  of  interest  had  there  been  authority 
from  them  to  write  it  there.     It  was  material  in  the  eyes  of 
the  plaintiff,  for  he  refused  to  take  the  note  without  interest 
added  to  it,  and  brings  the  suit  upon  it  in  this  altered  state. 
The  note  was,  therefore,  avoided  as  to  the  sureties,  and  the  court 
erred  in  holding  that  the  plaintiff  could  recover  the  principal 
from  all  the  parties,  disregarding  his  claim  for  the  interest. 
It  is  argued  that  a  recovery  of  the  principal  sum  does  no  harm, 
for  to  that  extent  the  sureties  bound  themselves.    But  the  con- 
clusive answer  is  that  stated  by  Mr.  Greenleaf,  supra,  section 
565.    The  ground  of  the  rule  is  public  policy  to  insure  the  pro- 
tection of  the  instrument  from  fraud  and  substitution.     The 
writing  goes  into  the  hands  of  the  party  who  claims  its  benefit, 
and  the  purpose  is  to  take  away  the  motive  for  alteration,  by 
forfeiting  the  instrument  on  discovery  of  the  fraud.    "When  the 
sureties  signed  it  they  had  a  right  to  have  it  delivered  unal- 
tered to  the  plaintiff.    He  was  bound  to  know  that  the  alteration 
was  rightfully  done,  and  that  the  penalty  of  his  negligence,  or 
his  wrongful  act,  was  a  loss  of  the  security. 

As  to  the  plea  of  non  est  factum,  there  ought  to  have  been 
no  difficulty.  The  plea  was  already  on  the  record,  and  it  was 
the  mere  oversight  of  the  clerk  that  it  did  not  appear  on  the 
judges'  trial  list.  Consequently,  when  informed  of  the  fact,  the 
plea  should  have  been  allowed  its  proper  effect;  and  if  the 
court  thought  the  plaintiff  was  taken  by  surprise,  a  juror  might 
have  been  withdrawn,  or  such  order  made  as  would  prevent 
injustice.  But,  as  the  case  was  submitted,  a  wrong  was  done 
to  the  defendant,  which  could  be  repaired  only  by  a  new  trial; 
for  the  effect  of  disregarding  the  plea  of  non  est  factum  on  the 


222  CHANGE  OF  CONTRACT. 

record  was  to  deprive  the  defendant  of  a  defense  which  struck 
at  the  very  marrow  of  the  plaintiff's  case. 

Judgment  reversed,  and  a  venire  facias  de  novo  awarded. 


2).    Any  valid  extension  of  time  given  to  the  principal  debtor 
without  co-nsent  of  the  surety  will  release  the  latter. 

HALLOCK  v.  YANKEY.    1889. 
102  Wis.  41;  78  N.  W.  Eep.  156;   72  Am.  St.  Rep.  861. 

'Appeal  from  Dodge  county  court;   M.  S.  GRISWOLD,  Judge. 

Action  by  W.  E.  Hallock  against  G.  Yankey  and  M.  Hartz- 
heim.  Judgment  for  defendants,  and  plaintiff  appeals.  -Af- 
firmed as  to  Hartzheim,  and  reversed  as  to  Yankey. 

This  was  an  action  against  the  defendants  to  enforce  their 
liability  as  guarantors  of  a  promissory  note.  The  defense  was 
that  the  note  had  been  extended  by  the  holder  thereof  without 
the  consent  of  the  defendants,  and  consequently  that  they  were 
released  from  liability.  The  evidence  was  meager,  and  showed 
that  on  the  23d  day  of  October,  1891,  the  Juneau  Manufacturing 
Company,  a  corporation  of  Juneau,  Wis.,  borrowed  $200  at  the 
Citizens'  Bank  of  Juneau,  and  executed  a  note  for  the  sum, 
payable  10  days  after  date,  with  interest  at  8  per  cent,  per 
annum.  The  defendant  Yankey  was  the  treasurer  and  financial 
manager  of  the  Juneau  Manufacturing  Company,  and  executed 
the  note  on  behalf  of  the  company.  At  the  time  the  note  was 
given  a  written  guaranty  of  payment  was  indorsed  upon  the 
back,  signed  by  the  defendants  Yankey  and  Hartzheim,  both  of 
whom  were  stockholders  in  the  corporation,  and  Yankey  was, 
as  before  stated,  the  treasurer  of  the  corporation.  On  the  3d  day 
of  November,  when  the  note  fell  due,  it  was  not  paid,  but  the 
interest  was  paid  in  advance  for  30  days,  and  the  bank  indorsed 
an  extension  for  30  days  on  the  back  of  the  note,  in  considera- 
tion of  the  advance  payment  of  interest.  At  the  time  of  this 
extension  both  Mr.  Yankey  and  Mr.  Hartzheim  were  present, 
and  Mr.  Yankey,  acting  for  the  corporation,  paid  the  advance 
interest,  in  order  to  procure  the  extension;  but  it  does  not  ap- 
pear that  Mr.  Hartzheim  actively  participated  either  in  the  pay- 


HALLOCK  v.  YANKEY. 

ment  of  the  interest  or  in  the  request  for  the  extension.  The 
note  was  extended  several  times  afterwards,  and  like  agreements 
of  extension  indorsed  upon  the  bank,  and  the  interest  paid  in 
advance  each  time  by  Mr.  Yankey,  as  treasurer  of  the  corpora- 
tion; but  the  evidence  does  not  show  that  Mr.  Hartzheim  had 
anything  to  do  with  the  subsequent  extensions,  or  even  that  he 
knew  of  them.  The  note  was  transferred  to  the  plaintiff  for 
value,  before  the  commencement  of  this  action.  Upon  this  evi- 
dence the  court  directed  a  verdict  for  the  defendants,  and  from 
judgment  upon  such  verdict  the  plaintiff  appeals. 

WINSLOW,  J.  (after  stating  the  facts).  As  to  the  defendant 
Hartzheim  there  can  be  no  doubt  that  the  verdict  was  rightly 
directed.  His  liability  was  that  of  a  surety  alone,  and,  upon 
very  familiar  principles  of  law?  he  was  discharged  if  the  time 
of  payment  of  the  note  was  definitely  extended  by  a  valid 
agreement  without  his  consent.  Machine  Co.  v.  Oberreich,  38 
Wis.  325.  Whatever  may  be  the  fact  as  to  Hartzheim 's  pres- 
ence at  the  time  of  the  first  extension  of  the  note,  it  appears 
without  dispute  that  the  note  was  definitely  extended  in  consid- 
eration of  the  prepayment  of  interest  a  number  of  times  after- 
wards, without  his  presence  or  consent.  The  payment  of  inter- 
est in  advance  is  a  sufficient  consideration  for  the  agreement 
of  extension  of  time.  Bank  v.  McDonald,  77  Wis.  486,  46  N.  W. 
902. 

As  to  Yankey,  however,  the  question  is  different.  The  evi- 
dence seems  to  show  satisfactorily  that  he  was  the  acting  officer 
of  the  corporation,  not  only  in  executing  and  delivering  the 
note  originally,  but  in  paying  the  interest  in  advance  at  the 
time  of  each  extension.  There  is  certainly  sufficient  evidence  to 
justify  a  jury  in  finding  that  he,  in  legal  effect,  requested  each 
extension  of  time,  and  paid  the  advance  interest  in  order  to 
secure  such  extension.  It  is  true  that  he  made  such  requests 
and  payments  in  his  capacity  as  an  officer  of  the  corporation 
and  on  its  behalf,  and  that  nothing  was  said  as  to  his  individual 
liability  as  guarantor;  and  the  question  presented  is  whether, 
having  requested  and  consented  to  the  extension  on  behalf  of 
the  corporation,  he  can  be  heard  to  say  that  he  did  not  thereby 
consent  to  the  extension  in  his  individual  capacity  as  guarantor. 
Of  course,  the  obligations  of  a  surety  are  strictissimi  juris. 
He  may  stand  upon  the  letter  of  his  contract.  He  may  have 
knowledge  that  an  extension  has  been  granted  to  his  principal, 


224  CHANGE  OF  CONTRACT. 

and  the  law  does  not  impose  on  him  the  duty  to  speak.  2 
Brandt,  Sur.  §  345.  But  the  surety  is  bound  by  the  rules  of 
good  faith  and  fair  dealing,  as  well  as  other  men.  If  he,  as 
agent  for  the  principal  debtor,  requests  and  obtains  an  extension 
of  time,  and  pays  the  consideration  for  such  extension,  and 
nothing  is  said  as  to  his  liability  as  surety,  it  is  very  obvious 
that  the  creditor  would  naturally  and  almost  inevitably  con- 
clude that  he  consents  to  the  extension  individually,  as  well  as 
in  his  capacity  as  agent.  How  many  bankers  or  business  men 
would  reason  thus,  "Yankey  has  consented  to  the  extension  as 
treasurer  of  the  corporation,  but  has  not  consented  in  his  indi- 
vidual capacity,  and  I  must  now  ask  him  if  he  consents  as  Mr. 
Yankey?"  We  think  very  few  would  think  of  drawing  such 
fine  lines  of  distinction.  After  Yankey  requested  and  procured 
the  extension  on  behalf  of  the  corporation,  and  gave  no  notice 
to  the  creditor  that  he  did  not  consent  to  an  extension  in  his 
character  as  surety,  we  think  that  well-known  rules  of  estoppel 
must  be  held  to  prevent  him  from  asserting  that  he  is  discharged 
as  surety  because  of  lack  of  consent.  He  has  actively  induced  a 
change  of  position  on  the  part  of  his  creditor,  which  he  will 
not  be  allowed  to  take  advantage  of,  tojiis  creditor's  injury.  _ 
'  Another  question  here  arises,  namely,  as  to  the  effect  of  the 
discharge  of  Hartzheim  upon  the  liability  of  Yankey.  While 
his  discharge  is,  in  effect,  a  discharge  by  operation  of  law,  still 
it  resulted  from  the  act  of  the  creditor  in  extending  the  time 
'  of  payment  without  the  surety's  consent;  consequently,  it  must 
vHbe  given  the  same  effect  as  a  voluntary  release.  Robertson  v. 
N  Smith,  18  Johns.  459.  There  is  no  doubt  but  that  the  provisions 
,-.  of  section  4204,  Rev.  St.  1898,  apply  to  joint  sureties  as  well  as 
>.  to  principal  debtors,  save  in  so  far  as  they  are  limited  by  the 
proviso  and  by  the  terms  of  section  4205.  Neither  of  these  limi- 
tations includes  the  present  case.  Therefore  the  release  oJ.  Hartz- 
heim will  operate  to  relieve  his  co-surety  from  liability  for -one- 
half  of  the  debt,  that  being  the  proportion  which  Hartzheim 
ought  to  have  paid  as  between  himself  and  Yankey  had  he  not 
been  released.  There  must  be  a  new  trial  as  to  Yankey,  but  his  1° 
liability  in  no  event  can  exceed  one-half  of  the  note.  As  to 
Hartzheim  the  judgment  is  affirmed,  with  costs,  and  as  to  Yan- 
key it  is  reversed,  with  costs,  and  the  action  is  remanded  for  a 
new  trial. 

BAKDEEN,  J.?  took  no  part. 


BENSON  v.  PHIPPS.  225 

BENSON  v.  PHIPPS.    1895. 
87  Texas  578;  29  8.  W.  Rep.  1061. 

Error  to  court  of  civil  appeals  of  Fourth  supreme  judicial 
district. 

Action  by  L.  Phipps  against  H.  L.  Benson  and  others.  From 
an  affirmance  (28  S.  W.  359)  by  the  court  of  civil  appeals  of 
a  judgment  for  plaintiff,  defendant  Benson  brings  error.  Re- 
versed. 

GAINES,  C.  J.  The  plaintiff  was  a  surety  for  one  Hosack,  the 
principal  maker  upon  a  promissory  note  payable  to  the  defend- 
ant in  error.  Some  days  after  the  note  fell  due  Hosack  wrote 
defendant  in  error  requesting  an  extension,  to  which  request 
the  defendant  replied,  by  letter,  as  follows:  "I  will  extend  the 
time  of  payment  one  year,  azid  look  with  confidence  for  the 
accrued  interest  within  60  days,  hoping  it  will  not  inconvenience 
you.  /7Af ter  that,  if  it  is  your  pleasure  to  make  the  interest  on 
the  extension  payable^  semi-annually,  it  will  help  me."  The  de- 
fendant in  error  testified  to  having  received  the  letter  from 
Hosack,  requesting  an  extension,  and  that  the  foregoing  was  his 
reply,  but  the  contents  of  Hosack 's  communication  were  not 
otherwise  shown.  He  also  testified  that  he  was  paid  nothing 
for  the  extension,  and  that  Hosack  ntever  paid  the  accrued  in- 
terest. Suit  having  been  brought  on  the  note  by  the  payee 
against  all  the  makers,  the  plaintiff  in  error  pleaded  his  surety- 
ship; and,  the  facts  as  stated  above  having  been  proved,  the 
trial  court  gave  judgment  for  the  plaintiff  in  that  court.  That 
judgment,  upon  appeal,  was  affirmed  by  the  court  of  civil  ap- 
peals. 

It  is  the  right  of  the  surety,  at  any  time  after  the  maturity 
of  the  debt,  to  pay  it,  and  to  proceed  against  the  principal  for 
indemnity.  This  right  is  impaired  if  the  creditor  enter  into  a 
valid  contract  with  the  principal  for  an  extension  of  the  time 
cf  payment.  The  obligation  of  the  surety  is  strictly  limited  to 
the  terms  of  his  contract,  and  any  valid  agreement  between  the 
creditor  and  the  principal,  by  which  his  position  is  changed  'for 
the  worse,  discharges  his  liability.  For  this  reason  it  is  univer- 
sally held  that  a  contract  between  the  two,  which  is  binding  in 
law,  by  which  the  principal  secures  an  extension  of  time,  re- 
leases the  surety,  provided  the  surety  has  not  become  party  to 

15 


226  CHANGE  OF  CONTRACT. 

the  transaction  by  consenting  thereto.  If  the  creditor  is  not 
bound  by  his  promise  to  extend,  it  is  clear  there  is  no  release. 
In  order  to  hold  him  bound  by  his  promise,  there  must  be  a 
consideration.  Whether  a  mere  agreement  for  an  extension  by 
the  debtor  is  sufficient  to  support  a  promise  to  extend  by  the 
creditor  is  a  question  upon  which  the  authorities  are  not  in 
accord.  We  are  of  opinion,  however,  that  the  question  should 
be  resolved  in  the  affirmative,  at  least  in  cases  in  which  it  is  con- 
templated by  the  contract  that  the  debt  should  bear  interest 
during  the  time  for  which  it  is  extended.  If  the  new  agreement 
were  that  the  debtor  should  pay,  at  the  end  of  the  period  agreed 
upon  for  the  extension,  precisely  the  same  sum  which  was  due 
at  the  time  the  agreement  was  entered  into,  the  case  might  be 
different.  But  a  promise  to  do  what  one  is  not  bound  to  do,  or 
to  forbear  what  one  is  not  bound  to  forbear,  is  a  good  considera- 
tion for  a  contract.  In  case  of  a  debt,  which  bears  interest  either 
by  convention  or  by  operation  of  law,  when  an  extension  for  a 
definite  period  is  agreed  upon  by  the  parties  thereto,  the  con- 
tract is  that  the  creditor  will  forbear  suit  during  the  time  of 
the  extension,  and  thejdebtor  foregoes  his  right  to  pay  the  debt 
before  the  end  of  that  time.  '-'The  latter  secures  the  benefit  of 
the  forbearance;  the  former  secures  an  interest  bearing  invest- 
ment for  a  definite  period  of  time.  One  gives  up  his  right  to  sue 
/  for  a  period,  in  consideration  of  a  promise  to  pay  interest  during 
the  whole  of  the  time;  the  other  relinquishes  his  right  to  pay 
during  the  same  period,  in  consideration  of  the  promise  of  for- 
bearance. To  the  question  why  this  is  not  a  contract,  we  think 
no  satisfactory  answer  can  be  given.  It  seems  to  us  it  would  be 
//  a  binding  contract,  even  if  the  agreement  were  that  the  debt 
should  be  extended  at  a  reduced  rate  of  interest.  That  an  agree- 
ment by  the  debtor  and  creditor  for  an  extension  for  a  definite 
time,  the  debt  to  bear  interest  at  the  same  rate,  or  at  an  in- 
creased, but  not  usurious,  rate,  is  binding  upon  both,  is  held 
in  many  cases,  some  of  which  we  here  cite:  Wood  v.  Newkirk, 
15  Ohio  St.  295 ;  Fowler  v.  Brooks,  13  N.  H.  240 ;  Davis  v.  Lane, 
10  N.  H.  156;  Stallings  v.  Johnson,  27  Ga.  564;  Robinson  v. 
Miller,  2  Bush,  179;  Keynolds  v.  Barnard,  36  111.  App.  218; 
Chute  v.  Pattee,  37  Me.  102 ;  Rees  v.  Berrington,  2  Ves.  Jr.  540. 
See,  also,  Grossman  v.  Wohleben,  90  111.  537;  McComb  v.  Kit- 
xtridge,  14  Ohio,  348. 

In  many  cases  which  seemingly  support  the  contrary  doctrine 


BENSON  v.  PHIPFS.  227 

there  was  a  mere  promise  by  the  creditor  to  forbear,  without  any 
corresponding  promise  on  part  of  the  debtor  not  to  pay  during 
the  time  of  the  promised  forbearance.  In  such  cases  it  is  clear 
that  there  is  no  consideration  for  the  promise.  In  others,  where 
there  was  a  mutual  agreement  for  the  extension,  it  may  be  that 
interest  during  the  period  of  extension  was  not  allowed  by  law, 
and  the  agreement  did  not  provide  for  the  payment  of  interest. 
The  case  of  MeLemore  v.  Powell,  12  Wheat.  554,  may  have  been 
of  that  character.  In  this  case,  as  we  construe  the  correspond- 
ence between  Hosack  and  the  defendant  in  error,  there  was  a 
request  for  an  extension  of  the  debt  for  12  months  on  part  of 
the  former,  and  an  unconditional  acceptance  on  part  of  the  lat- 
ter. "We  infer  that  Hosack  must  have  written  something  about 
the  payment  of  accrued  interest, — probably  that  he  hoped  to  be 
able  to  pay  in  60  days.  The  presumption  is  that  the  letter  was 
in  the  possession  of  the  defendant  in  error  at  the  time  of  the 
trial.  He  did  not  produce  it.  In  any  event,  he  should  have 
known  its  contents,  and,  if  Hosack  made  his  request  for  an  ex- 
tension conditional  upon  his  payment  of  the  accrued  interest,  he 
should  have  testified  to  the  fact.  We  conclude,  therefore,  that 
there  was  a  binding  promise  for  an  extension,  and  that  the 
plaintiff  in  error  was  therefore  released.  Upon  a  careful  exami- 
nation of  our  own  Reports,  we  have  found  no  decision  of  our 
court  which  is  in  conflict  with  the  opinion  herein  expressed. 
There  are  a  few  cases  which  seem  not  to  be  in  accord  with  our 
conclusions,  but  we  think  the  conflict  is  only  apparent.  In 
Gibson  v.  Irby,  17  Tex.  173,  the  maker  of  the  note  sued  on 
pleaded  that  the  payee  had  promised  him  that  the  note  should 
not  be  due  and  payable  until  the  defendant  had  time  to  gather 
his  crop,  on  condition  that  the  defendant  would  then  promptly 
pay  the  money  and  interest.  The  supreme  court  affirmed  the 
ruling  of  the  trial  court  in  sustaining  an  exception  to  the  plea, 
upon  the  ground  that  the  plea  showed  no  consideration  for  the 
promise.  This  ruling  was  correct,  but  if  it  had  been  pleaded 
affirmatively  that  the  defendant  had  promised  the  payee  that  he 
would  not  claim  the  right  to  pay  the  debt  before  his  crop  was 
gathered  we  think  the  plea  would  have  been  good.  In  Claiborne 
v.  Birge,  42  Tex.  98,  Birge  was  the  surety  of  one  Urquhart  upon 
three  promissory  notes,  which  fell  due  at  different  dates.  After 
two  of  them  had  matured,  Urquhart  executed  a  written  promise 
to  the  holder  "to  pay  two  per  cent,  per  month  interest  on  the 


228  CHANGE  OF  CONTRACT. 

.  .  .  .  notes  after  maturity  of  the  same."  The  evidence 
failed  to  show  that  the  .holder  agreed  to  give  an  extension.  It 
was  held  that  Urquhart's  promise  was  void,  and  that  the  surety 
was  not  released.  There  are  some  expressions  in  the  opinion  in 
that  case  which  do  not  accord  with  our  views,  but  which  were 
not  necessary  to  its  decision.  In  Payne  v.  Powell,  14  Tex.  600, 
it  is  held  that  an  agreement  to  extend2  in  consideration  of  a 
promise  to  pay  usurious  interest,  is  not  binding  upon  the  debtor, 
and  therefore  is  not  binding  on  the  creditor,  and  that  accord- 
ingly the  surety  was  not  released.  On  the  other  hand,  it  is  de- 
termined in  Knapp  v.  Mills,  20  Tex.  123,  that  an  agreement  to 
pay  interest  at  an  increased  rate,  which  is  not  usurious,  is  suffi- 
cient to  support  a  contract  for  an  extension.  There  is  error  ia 
the  judgment,  for  which  it  must  be  reversed;  and,  since  it  may 
be  shown  upon  another  trial  that  Hosack's  offer  contained  a 
condition  that  he  would  pay  the  interest  in  60  days,  the  cause 
is  remanded. 


ROCKVILLE  NAT.  BANK  v.  HOLT.    1890. 
55  Conn.  526;   20  Ail.  Rep.  669;   18  Am.  St.  Rep.  293. 

Appeal  from  superior  court.  Toll  for  county;  Torrance, 
SOFudge. 

ANDREWS,  C.  J.  The  L.  B.  Smith  Rubber  Company,  a  corpo- 
ration doing  business  at  Setauket,  N.  Y.,  being  indebted  to  the 
defendant,  gave  him  three  promissory  notes,  and  accepted  three 
bills  of  exchange,  representing  such  indebtedness  and  aggrega- 
ting in  the  whole  something  more  than  $5,000.  All  of  the  notes 
and  bills  were  payable  to  the  order  of  the  defendant,  were  by 
him  indorsed,  and  at  his  request  were  discounted  for  his  benefit 
by  the  plaintiff.  Shortly  thereafter  the  rubber  company  failed. 
That  failure  compelled  the  defendant  to  go  into  insolvency.  The 
plaintiff  presented  its  claim  against  his  insolvent  estate,  and 
received  a  dividend  thereon.  The  defendant  having  since  that 
time  acquired  other  property  the  plaintiff  brought  this  suit  and 
attached  such  other  property.  Since  the  bringing  of  this  suit 
the  plaintiff,  in  common  with  nearly  all  the  creditors  of  the  L. 
B.  Smith  Rubber  Company,  including  the  defendant,  signed 
an  agreement  which  is  fully  set  out  in  the  finding,  but  which 


ROCKVILLB  NAT.  BANK  v.  HOLT.  229 

it  is  not  necessary  here  to  repeat.  For  the  purposes  of  the 
present  discussion  it  is  sufficient  to  say  that  that  agreement  pro- 
vided, among  various  other  things,  that  the  creditors  of  the 
rubber  company  should  assign  their  claims  to  certain  persons 
called  "a  reorganizing  committee,"  and  that  this  committee 
should  proceed  to  reorganize  the  company  and  should  issue  to 
each  of  the  several  creditors  in  payment  for  their  respective 
claims  the  stock  of  the  reorganized  company,  which  the  cred- 
itors agreed  to  accept.  When  the  plaintiff  signed  the  agreement 
it  added  to  its  signature:  "Reserving  all  rights  against  R.  G. 
Holt,  or  against  his  estate,  or  assignee  for  the  benefit  of  his 
creditors."  These  words  did  not  appear  in  the  body  of  the  in- 
strument. The  defendant  insists  that  by  signing  the  agreement 
the  plaintiff  assigned  all  its  claim  against  the  L.  B.  Smith 
Rubber  Company  to  the  reorganizing  committee,  and  that  as 
he  is  liable  to  the  plaintiff  only  as  a  surety  for  that  company 
the  assignment  of  the  claim  against  the  principal  debtor  dis- 
charges him.  That  an  unqualified  release  of  a  principal  debtor 
will  be  a  discharge  also  of  the  surety  is  admittedly  good  law. 
The  plaintiff,  however,  claims  that  by  the  reservation  appended 
to  its  signature  it  is  not  affected  by  that  rule.  The  defendant 
cites  two  cases,  either  of  which  by  its  terms  fully  supports  his 
contention.  But  the  authority  of  each  of  these  cases  is  greatly 
weakened,  if  not  entirely  overturned,  by  later  decisions  in  the 
same  jurisdiction.  Webb  v.  Hewitt,  3  Kay  &  J.  438,  is  sub- 
stantially overruled  by  Green  v.  Wynn,  L.  R.  7  Eq.  31,  and 
L.  R.  4,  Ch.  204;  and  Bank  v.  Blair,  44  Barb.  641,  by  Morgan 
v.  Smith,  70  N.  Y.  545 ;  Calvo  v.  Davies,  73  N.  Y.  211 ;  Bank 
v.  Bigier,  83  N.  Y.  51,  and  Shutts  v.  Fingar,  100  N.  Y.  539,  3 
N.  E.  Rep.  588.  It  is  stated  in  DeColyar  on  Principal  &  Surety, 
418,  that  such  a  reservation  as  was  made  by  the  plaintiff  pre- 
vents there  being  any  discharge  of  the  surety,  and  gives  as  au- 
thority Kearsley  v.  Cole,  16  Mees.  &  W.  128;  Wyke  v.  Rogers, 
1  De  Gex,  M.  &  G.  408;  Boaler  v.  Mayor,  19  C.  B.  (N.  S.)  76, 
84;  Owen  v.  Homan,  4  H.  L.  Gas.  997;  and  Close  v.  Close,  4 
De  Gex,  M.  &  G.  176.  See,  also,  Tobey  v.  Ellis,  114  Mass.  120; 
Kenworthy  v.  Sawyer,  125  Mass.  28;  Bank  v.  Lineberger,  83 
N.  C.  454 ;  Morse  v.  Huntington,  40  Vt.  493 ;  Hagey  v.  Hill,  75 
Pa.  St.  108 ;  Mueller  v.  Dobschuetz,  89  111.  176.  The  weight  of 
authority  seems  to  us  to  be  strongly  adverse  to  the  defendant's 
claim. 


230  CHANGE  OF  CONTRACT. 

There  is  another  view  of  the  case  which  makes  it  clear  that 
the  defendant  is  not  entitled  to  a  discharge  by  reason  of  the 
plaintiff's  signing  the  agreement.  Whenever  a  creditor  gives 
time  to,  or  makes  a  new  contract  with,  the  principal  debtor,  of 
which  new  contract  the  surety  has  knowledge  and  to  which  he 
assents,  he  is  not  thereby  discharged.  Adams  v.  Way,  32  Conn. 
160;  Corlies  v.  Estes,  31  Vt.  653;  Smith  v.  Winter,  4  Mees.  & 
W.  454.  The  composition  agreement  was  beneficial  to  all  the 
creditors  of  the  L.  B.  Smith  Rubber  Company,  provided  all  en- 
tered into  it.  The  defendant  and  his  trustee  in  insolvency 
signed  it  before  the  plaintiff  did.  It  was  obviously  for  the  ad- 
vantage of  each  that  the  other  should  sign.  Without  some  such 
arrangement  neither  could  ever  hope  for  any  payment  from 
that  company.  With  such  an  arrangement  there  was  a  chance 
that  they  might  both  be  paid  in  full.  The  plaintiff  signed  with 
the  knowledge  that  the  defendant  and  his  trustee  had  previously 
signed.  A  composition  deed  implies  not  only  an  agreement  of 
the  debtor  with  each  of  his  creditors,  but  also  an  agreement  by 
each  creditor  with  each  of  the  others.  The  signing  of  such  deed 
by  any  creditor  is  in  some  measure  a  request  to  all  the  others 
to  sign  also.  The  circumstances  of  this  case  show  pretty  clearly 
that  the  defendant  knew  of  and  assented  to  the  act  of  the  plain- 
tiff in  signing  the  agreement.  There  is  no  error  in  the  judg- 
ment complained  of.  The  other  judges  concurred. 


EGBERTS  v.  STEWART.    1856. 
31  Miss.  664. 

The  error  from  the  Circuit  Court  of  Yazoo  county.  Hon.  E.  G. 
Henry,  judge. 

This  was  an  action  against  a  surety,  to  recover  the  amount  of 
a  promissory  note  executed  by  him  and  one  Blackman,  his  prin- 
cipal, who  has  since  died. 

The  defendant  pleaded  four  pleas  in  bar  of  the  action;  the 
two  first  are  sufficiently  set  out  in  the  opinion  of  the  court. 
The  third  plea  averred  that  the  defendant  was  surety  of  Black- 
man on  the  note  sued  on;  "and  that  Blackman  made  several 
payments  to  plaintiff  on  account  of  the  same;  and  plaintiff 


ROBERTS  v.  STEWART.  231 

finally  agreed,  ifjsaid  Blackman  would  promise  to  increase,  the 
rate  of  interest  on  said  note,  or  promise  to  pay  a  rate  of  interest 
greater  than  the  legal  rates  of  interest,  that  he,  the  said  plaintiff, 
would  extend  the  time  of  payment  until  December,  1853,  which 
said  increased  rate  of  interest,  he,  said  Blaekman  promised  to 
pay;  and  said  complainant,  in  consideration  thereof,  promised 
to  give  said  extension  of  time,  without  the  consent  of  defendant." 
The  fourth  plea  was  a  plea  of  payment.  The  plaintiff  demurred 
to  the  three  first  pleas,  and  the  demurrer  being  sustained,  the 
defendant  declined  to  plead  further.  The  cause  was  then  sub- 
mitted to  a  jury  on  the  fourth  plea  and  issue  thereon,  and  the 
plaintiff  had  a  verdict  and  judgment.  The  defendant  sued  out 
this  writ  of  error. 

HANDY,  J.,  delivered  the  opinion  of  the  court. 

This  was  an  action  brought  by  the  defendant  in  error  to  re- 
cover the  money  due  on  a  promissory  note  made  by  the  plaintiff 
in  error,  as  surety  for  one  Blackman,  due  twelve  months  after 
the  10th  December,  1851,  for  $1,060. 

The  defendant  below  pleaded:  First.  That  the  plaintiff,  on 
the  28th  January,  1853,  received  from  Blackman,  on  account  of 
the  note  $300 ;  and  at  the  same  time  agreed,  by  a  written  mem- 
orandum, entered  on  the  back  of  the  note,  to  wait  for  the  balance 
of  the  note  until  December  thereafter,  the  agreement  for  an 
extension  of  the  tune  of  payment  being  made  in  consideration 
of  the  sum  of  money  so  paid ;  which  agreement  was  made  without 
the  consent  of  the  surety.  Second.  The  second  plea,  in  addition 
to  the  averments  above  stated,  avers  that  Blackman,  at  the  time 
of  making  the  agreement,  was  solvent  and  able  to  pay  the  debt, 
but  has  since  died  insolvent.  Third.  That  Blackman  made  sev- 
eral payments  on  account  of  the  note,  and  that  the  plaintiff 
finally  agreed  that,  if  Blackman  would  promise  to  increase  the 
interest,  or  promise  to  pay  a  rate  of  interest  greater  than  the 
legal  rate,  he  would  extend  the  time  of  payment  until  December, 
1853;  and  that  Blackman  promised  to  pay  the  increased  rate 
of  interest,  and  in  consideration  thereof,  the  plaintiff  promised 
to  give  the  extension  of  time,  without  the  consent  of  the  surety. 

To  these  pleas,  the  plaintiff  demurred,  and  the  demurrer  was 
sustained,  and  judgment  rendered  for  the  plaintiff;  and  there- 
upon this  writ  of  error  is  prosecuted. 

The  only  questions  for  consideration  are  those  arising  upon 
the  sufficiency  of  the  pleas. 


232  CHANGE  OF  CONTRACT. 

Upon  the  first  and  second  pleas,  two  points  are  raised.  First. 
Whether  a  mere  gratuitous  promise  by  a  creditor  to  a  principal 
debtor  to  forbear  suit  for  any  stated  time,  if  carried  out,  will 
discharge  a  surety.  Second."  Whether  an  agreement  by  the  cred- 
itor with  the  principal,  in  consideration .jof__  tUe.  payiae.n£_.ojLa_ 
part  of  the  debt  after  it  has  become  due,  that  he  will  extend  the 
time  of  payment  to  a  future  stipulated  period  without  the  con- 
sent of  the  surety,  will  discharge  him. 

The  first  proposition  cannot  be  the  subject  of  any  doubt,  and 
we  are  aware  of  no  case  in  which  it  has  been  held  that  a  surety 
would  be  discharged  under  such  circumstances.  All  the  authori- 
ties hold,  that  in  order  to  discharge  the  surety,  there  must  be 
a  binding  contract  between  the  creditor  and  the  principal, 
founded  on  a  valuable  legal  consideration,  by  which  the  creditor 
is  precluded  from  suing  upon  the  contract  according  to  its 
original  terms ;  and  if  there  be  no  such  consideration,  the  agree- 
ment cannot  be  said  to  be  obligatory,  and  the  creditor  may,  in 
point  of  law,  disregard  it  and  bring  his  suit  at  any  time.  What- 
ever might  be  the  force  of  such  an  agreement,  in  point  of  good 
faith  or  morals,  it  certainly  wants  that  indispensable  requisite 
of  a  contract,  a  valid  legal  consideration. 

And  for  the  same  reason,  the  surety  will  not  be  discharged  un- 
der the  circumstances  of  the  second  proposition.  For  the  contract 
for  forbearance  cannot  be  valid  as  such,  unless  it  be  founded  on  a 
new  consideration,  independent  of  that  of  the  original  contract, 
upon  some  benefit  received  or  secured  to  the  creditor  which  the 
principal  was  not  bound  to  render  under  the  original  contract, 
such  as  the  payment  of  interest,  or  a  part  of  the  debt  before  it 
was  due,  the  giving  of  additional  security  or  the  like,  as  a  consid- 
eration for  further  indulgence.  But  a  partial  payment,  made 
after  the  debt  has  become  due,  cannot  be  a  new  and  independent 
consideration.  It  is  merely  paying  a  part  of  what  the  debtor  was 
already  bound  to  pay  in  full.  No  benefit  is  received  by  the  cred- 
itor, but  what  he  was  entitled  to  under  the  original  contract,  and 
the  debtor  has  parted  with  nothing  but  what  he  was  already 
bound  to  pay.  It  cannot  therefore  with  any  propriety  be  said 
that  such  partial  payment  would  be  a  sufficient  legal  considera- 
tion to  render  the  promise  of  further  indulgence  a  binding  con- 
tract, 'debarring  the  creditor  of  the  legal  right  of  suing  upon  the 
original  contract,  regardless  of  such  agreement.  Montgomery  v. 
Dillingham,  3  S.  &  M.  647  j  Newell  v.  Hamer,  4  How.  684. 


ALLEN  v.  SHARPS.  233 

The  case  of  Rupert  v.  Grant,  6  S.  &  M.  433,  is  relied  upon  as 
conflicting  with  this  view  of  the  subject.  But  the  point  of  the 
sufficiency  of  the  consideration,  founded  on  a  partial  payment  of 
a  debt  due,  does  not  appear  to  have  been  specially  considered  in 
that  case ;  and  it  is  manifest  that  the  rule  contended  to  be  there 
sanctioned  cannot  be  sustained  upon  principle  or  authority,  con- 
sequently we  cannot  give  it  our  sanction. 

The  third  plea  was  insufficient  upon  several  grounds.  First. 
It  does  not  show  what  rate  of  increased  interest  Black- 
man  agreed  to  pay  in  consideration  of  the  indulgence, 
or,  whether  it  was  paid  or  secured  to  be  paid,  so 
as  to  give  the  creditor  the  benefit  of  it.  Second.  If  it  was 
not  paid,  as  must  be  presumed  from  the  substance  of  the 
plea,  and  was  secured  to  be  paid,  by  note  or  otherwise,  that 
contract  was  void  for  usury;  and  an  agreement  to  give  time, 
founded  on  such  consideration,  will  not  be  binding  on  the  cred- 
itor, because  it  is  not  legally  obligatory  upon  the  debtor,  and  will 
not  discharge  the  surety.  Tudor  v.  Goodloe,  1  B.  Monroe,  322; 
Anderson  v.  Mannon,  7  Ib.  217 ;  Duncan  v.  Reid,  8  Ib.  382 ;  Vilas 
v.  Pusey,  1  Comstock,  274;  Pyle  v.  Bestock,  10  Ala.  589. 

Let  the  judgment  be  affirmed. 


c.    An  extension  of  time  procured  by  the  fraud  of  the  principal 
will  not  relieve  the  surety  because  it  is  not  binding  on  the 
•>—    creditor. 

ALLEN  v.  SHARPE.     1871. 
37  Ind.  67;  10  Am.  Rep.  80. 

Suit  by  the  appellees  against  the  appellant,  on  a  promissory 
note,  payable  in  bank  made  by  Layton  Mills,  payable  to  Moses 
Allen  and  indorsed  by  him  to  the  appellees.  The  further  facts 
stated  in  the  complaint  are,  that  when  the  note  matured,  Mills 
brought  to  the  plaintiffs  at  their  bank  another  note  for  a  like  sum, 
made  by  him  and  payable  to  the  order  of  said  Allen,  thirty  days 
after  date,  and  upon  the  same  terms  as  said  first  note,  which  then 
and  there  had  upon  the  back  of  it  what  purported  to  be,  and 
Mills  represented  to  be,  the  indorsement  of  said  Allen ;  that  upon 
the  faith  that  said  indorsement  was  genuine  and  authorized,  the 


: 


234  CHANGE  OF  CONTRACT. 

plaintiffs  surrendered  to  Mills  the  first  note,  and  took  in  lieu 
of  it  the  last-named  note ;  that  the  indorsement  was  forged,  and 
Allen  refuses  to  recognize  the  same;  that  said  first-named  note 
remains  unpaid  and  is  in  the  hands  of  defendant  or  of  the  repre- 
sentatives of  Mills,  who  is  dead ;  that  at  the  time  the  second  note 
was  substituted  for  the  first,  Mills  was  insolvent,  and  the  same 
was  received  solely  upon  the  faith  that  the  defendant,  who  was 
solvent,  had  indorsed  the  same,  etc. 

The  defendant  demurred  to  the  complaint,  and  his  demurrer 
was  overruled.  He  then  answered,  stating  in  addition  to  the  facts 
disclosed  in  the  complaint,  that  he  indorsed  the  note  for  the  ac- 
commodation of  Mills,  who  got  the  money  on  the  same,  which 
was  known  to  the  plaintiffs ;  that  the  last  note  was  received  by  the 
plaintiffs  in  satisfaction  of  the  note  in  suit,  without  the  knowl- 
edge or  consent  of  the  defendant ;  that  he  did  not  know  for  fifteen 
days  that  the  note  sued  on  was  claimed  by  the  plaintiffs  as  not 
paid,  but  during  that  time  he  supposed  it  had  been  paid  by 
Mills,  and  he  avers  the  fact  to  be  that  it  was  paid  and  satisfied 
as  aforesaid ;  that  at  the  time  of  the  acceptance  of  the  second  note, 
the  plaintiffs  canceled  and  surrendered  up  to  Mills  the  first  note ; 
wherefore,  etc. 

The  plaintiffs  demurred  to  this  answer,  because  it  did  not 
state  facts  sufficient  to  constitute  a  defense,  and  their  demurrer 
was  sustained.  The  defendant  excepted. 

DOWNEY,  J.  (after  stating  the  above  facts).  The  point  pre- 
sented by  the  assignment  of  errors,  which  calls  in  question  the 
correctness  of  the  decisions  of  the  court  in  overruling  the  demur- 
rer to  the  complaint  and  in  sustaining  the  demurrer  to  the  an- 
swer, is  this :  Were  the  delivery  by  Mills  to  the  plaintiffs  of  the 
second  note,  with  the  name  of  Allen  forged  thereon,  Mills  repre- 
senting it  as  genuine,  and  its  acceptance  by  the  plaintiffs  as  pay- 
ment of  the  note  on  which  the  action  is  predicated,  Mills  being 
then  insolvent,  and  the  plaintiffs  relying  exclusively  on  the  lia- 
bility and  solvency  of  Allen,  a  good  defense  to  the  action  ? 

We  think  that  neither  upon  reason  nor  authority  can  these  facts 
be  held  to  be  a  satisfaction  of  the  note  on  which  the  action  is 
predicated. 

The  alleged  satisfaction  was  not  made  by  Allen.  He,  however, 
sets  up  what  was  done  by  Mills  as  amounting  to  a  satisfaction. 
He  ratifies  and  approves  what  was  done  by  Mills,  and  claims  that 
it  discharged  the  note.  Like  a  principal  who  ratifies  an  unau- 


ALLEN  v.  SHARPE.  235 

thorized  act  of  his  agent,  he  seeks  to  give  it  effect,  and  make  it 
operative,  and  to  claim  the  benefit  of  the  act.  If  he  would  ratify 
and  adopt  the  act  of  Mills  he  must  adopt  it  in  whole.  He  must 
be  held  as  making  Mills  his  agent,  and  as  adopting  all  the  parts 
and  attending  circumstances  of  the  transaction.  He  cannot  pre- 
sent and  rely  upon  such  part  or  parts  of  the  transaction  as  are 
favorable  to  him,  and  reject  the  residue.  While  he  adopts  and 
relies  upon  the  delivery  of  the  second  note  by  Mills,  as  a  satisfac- 
tion of  the  note  in  suit,  he  must  also  adopt,  ratify,  and  make  his 
own  the  falsehood  and  fraud  of  Mills,  in  representing  the  indorse- 
ment upon  the  second  note  as  genuine,  which  must  have  the  effect 
of  taking  away  from  the  transaction  every  semblance  of  a  satis- 
faction. The  appellees  did  not  agree  to  accept  a  note  on  which 
Mills  alone  was  liable,  and  he  insolvent.  What  they  contracted 
for  was  a  note  on  which  Mills  was  liable  as  maker  and  Allen  as 
indorser.  This  they  did  not  get,  and  they  are,  consequently,  not 
bound  by  the  promise  to  take  the  worthless  note,  and  surrender 
up  their  right  of  action  upon  the  first  note.  Allen,  having  re- 
fused to  recognize  or  admit  any  liability  on  the  second  note,  can- 
not set  up  the  giving  of  it  by  Mills  as  a  bar  to  a  recovery  on  the 
first  one.  It  seems  to  be  supposed,  however,  that  Allen  had  some 
ground  to  complain,  because  "he  did_not__know  for  fifteen 
days  that  the  note  sued  on  was  claimed  by  the  plaintiffs 
alTnoFpaid,  but  during  that  time  he  supposed  it  had  been  paid 
T5y"'Mills7r'  What  harm  was  done  him,  or  what  damage  accrued 
to  him  from  this  ignorance  ?  Mills  was  insolvent.  If  Mills  had 
been  solvent,  and  by  the  lapse  of  tune  Allen  had  lost  an  oppor- 
tunity to  save  himself  from  loss  as  his  indorser,  there  would  have 
been  some  reason  for  urging  this  point.  But  without  such,  a 
showing  the  argument  is  destitute  of  force. 

In  Bell  v.  Buckley,  11  Exch.  631,  the  action  was  upon  a  bill 
of  exchange.  There  was  a  plea  of  payment,  and  issue  thereon. 
The  evidence  on  the  trial  disclosed  the  facts  to  be  that  the  alleged 
payment  consisted  in  the  delivery  to  the  plaintiff  of  another  bill 
of  the  same  parties,  as  appeared,  but  on  which  the  acceptance 
was  forged.  The  bill  was  in  that  case,  as  the  note  was  in  this, 
accommodation  paper.  There  the  principal  in  the  transaction 
had  become  bankrupt,  and  absconded.  Here  the  principal  had 
become  insolvent.  It  was  submitted,  in  that  case,  on  the  part  of 
the  plaintiff  that  the  facts  did  not  amount  to  a  payment  of  the 
bill.  The  learned  judge  was  of  that  opinion,  and  a  verdict  was 


236  CHANGE  OF  CONTRACT. 

entered  for  the  plaintiff  for  the  amount  of  the  bill  and  interest, 
leave  being  reserved  to  the  defendants  to  move  to  enter  a  verdict 
for  them.  Upon  a  rule  nisi,  after  a  full  discussion  of  the  question, 
ALDERSON,  B.  said:  "The  rule  must  be  discharged.  The  only 
question  is,  whether  the  defendant  has  made  out  that  this  bill 
was  paid  by  Thornley.  It  appears  that  the  day  before  the  bill 
became  due,  Thornley  came  to  the  bank,  and,  there  being  another 
bill  of  his  due  that  day,  he  requested  the  manager  to  'retire'  those 
bills  by  discounting  two  other  bills  which  he  brought  with  him. 
The  manager  consented,  and  for  the  purpose  of  retiring  the  bill 
for  which  this  action  is  brought,  Thornley  gave  to  the  manager 
a  bill  for  the  same  amount,  and  apparently  between  the  same 
parties,  the  present  defendant  being  supposed  to  be  the  acceptor. 
It  turned  out,  however,  that  it  was  a  bill  upon  which  no  action 
could  be  maintained  against  the  defendant,  since  the  acceptance 
was  a  forgery.  The  transaction  is  simply  this:  The  bank  take 
up  the  bills,  and  charge  in  account  with  Thornley  the  amount 
which  the  discount  would  have  been  if  it  had  been  discounted  by 
a  third  person,  and  they  give  him  credit  for  the  amount  of  tha 
forged  bill,  minus  the  discount.  That  is  not  payment  of  the 
other  bill.  Then  it  is  suggested,  on  the  authority  of  Clayton  '3 
Case,  that  inasmuch  as  Thornley  paid  moneys  into  the  bank  after 
the  bill  was  due,  they  must  be  taken  as  paid  in  discharge  of  that 
•bill.  But  where  there  is  an  account  on  the  one  side  of  sums  ow- 
ing, and  on  the  other  of  sums  paid,  there  is  no  presumption  that 
the  items  of  payment  are  in  respect  of  the  items  owing;  it  de- 
pends on  the  fact  of  actual  appropriation. ' ' 

PLATT,  B.,  said:  "I  am  of  the  same  opinion.  In  order  to  re- 
tire the  other  bill,  the  bank  discount  the  forged  bill,  and  give 
Thornley  credit  for  the  amount,  minus  the  discount.  That  is  no 
payment  of  the  former  bill,  but  a  mere  substitution  of  one  bill 
for  another,  for  the  purpose  of  giving  the  debtor  an  ulterior  day 
of  payment." 

MARINT,  B.,  said :  "I  am  of  the  same  opinion.  The  case,  when 
understood,  is  perfectly  plain.  It  is  an  action  against  the  ac- 
ceptor of  a  bill  of  exchange ;  the  plea  states  that  it  was  accepted 
for  the  accommodation  of  Thornley,  and  it  goes  on  to  allege  that 
Thornley  paid  the  amount.  The  defendant  must,  therefore,  es- 
tablish that  fact.  Then,  what  is  payment  of  a  bill  ?  It  is  argued 
that  the  delivery  of  one  bill  to  'retire'  another  is  payment;  in 
one  sense  it  may  be,  but  the  meaning  of  payment  in  this  plea  is 


ALLEN  V.  SHARPS.  237 

an  equivalent  amount  of  money  given  by  the  debtor  to  the  cred- 
itor in  satisfaction  of  his  claim  on  the  bill.  Then  what  are  the 
facts?  The  day  before  the  bill  becomes  due,  Thornley  goes  to 
the  manager  of  the  bank,  and  induces  him  to  take  up  the  bill,  by 
giving  him  another  bill  which  turns  out  to  have  a  forged  accept- 
ance. That  is  no  payment.  Suppose  Thornley  had  said  to  the 
manager  of  the  bank:  'A.  B.  owes  me  a  sum  of  money,  and  here 
is  a  document  by  which  he  admits  the  debt ;  take  it  and  get  the 
money,  and  pay  the  bill  which  you  hold  of  mine ; '  that  the  man- 
ager assented,  but,  on  going  to  A.  B.,  found  that  the  document 
was  a  forgery,  could  it  for  one  moment  be  contended  that  there 
was  any  payment  of  the  bill?  That,  however,  is  this  identical 
case,  the  only  difference  being,  that  here  the  manager  of  the  bank 
agreed  to  accept  a  document  not  payable  immediately,  but  at 
the  expiration  of  three  months.  Then  it  is  said  that  the  case  is 
one  of  hardship  on  the  defendant,  who  is  a  mere  surety ;  but  as- 
suming that  the  plaintiff  was  bound  to  consider  him  other  than 
the  principal  debtor,  even  if  this  had  been  an  action  not  upon  the 
bill  itself,  but  against  him  as  a  surety,  I  think  that  he  would  have 
had  no  defense.  It  is  also  said  that  it  is  a  case  of  hardship,  be- 
cause the  defendant,  not  having  been  called  upon,  would  natu- 
rally suppose  the  bill  was  paid.  But  a  person  being  under  the 
idea  that  a  bill  is. discharged,  when  it  is  not  in  fact  discharged, 
nevertheless  remains  liable.  According  to  my  view  of  the  case, 
there  is  not  a  scintilla  of  evidence  of  payment  of  the  bill,  in  the 
sense  in  which  that  term  is  used  in  the  plea;  the  entries  in  the 
bank  books  are  nothing  more  than  a  mode  of  keeping  the  ac- 
counts by  debits  and  credits. ' ' 

In  "Wait  v.  Brewster,  31  Vt.  516,  the  court,  in  discussing  what 
amounts  to  satisfaction  of  a  note,  say:  "Ordinarily,  a  note  given 
for  a  previous  debt  is  prima  facie  payment  of  such  debt.  The 
law  supposes  that  the  parties  intended  to  extinguish  the  old  debt 
and  leave  no  right  of  action  except  upon  the  note."  "But,"  say 
the  court,  "if  the  parties  stipulate  that  the  note  shall  not  have 
that  operation,  then  their  agreement  governs,  and  the  antecedent 
cause  of  action  still  subsists.  Other  limitations'  of  the  general 
doctrine  will  appear  from  an  examination  of  the  authorities 
above  cited.  Thus  it  has  been  held  that  when  the  party  takes  the 
note  under  a  misapprehension  as  to  facts,  he  supposing  that  other 
parties  are  bound  by  it  who  are  not,  then  the  intention  of  treating 


238  CHANGE  OF  CONTRACT. 

it  as  payment  is  rebutted,  and  the  party  may  sue  upon  the 
original  debt. ' ' 

We  are  referred  by  counsel  for  appellant  to  The  Pres.,  etc.,  of 
the  Gloucester  Bank  v.  The  Pres.,  etc.,  of  the  Salem  Bank,  17 
Mass.  33,  where  it  was  held,  that  "where  a  banking  company 
paid  notes,  on  which  the  name  of  the  president  had  been  forged, 
and  neglected  for  fifteen  days  to  return  them,  it  was  held  that 
they  had  lost  their  remedy  against  the  person  from  whom  the 
notes  had  been  received. ' '  This  case  is  wholly  unlike  the  one  un- 
der consideration.  There  the  party  who  presented  to  the  bank 
the  forged  bills  was  an  innocent  party,  and  it  was  important  to 
him  to  have  the  bills  returned  at  once,  if  they  were  not  genuine, 
so  that  he  might  return  them  to  the  party  from  whom  they  had 
been  received.  And  in  addition  to  these  facts,  the  forged  signa- 
ture was  that  of  the  president  of  the  bank  which  received  and 
paid  the  bills,  and  must  be  presumed  to  have  known  immediately 
of  the  spurious  character  of  the  bills. 

We  are  also  referred  to  Coggill  v.  The  American  Exchange 
Bank,  1  N.  Y.  113,  but  have  been  unable  to  see  its  force  as  an  au- 
thority in  the  case  under  consideration. 

Professor  Parsons,  in  his  work  on  notes  and  bills,  is  cited  by 
appellant.  He  says:  "As  money  paid  under  a  mistake  of  fact 
may  always  be  recovered  back,  one  who  pays  money  on  forged 
paper,  by  discounting  or  cashing  it,  for  example,  can  always  re- 
cover it  back,  provided  he  has  not  contributed  to  the  mistake  him- 
self, materially,  by  his  own  fault  or  negligence,  and  provided 
that,  by  an  immediate  or  sufficiently  early  notice,  he  has  enabled 
the  party  to  whom  he  paid  it  to  indemnify  himself  as  far  as  possi- 
ble." 2  Pars.  Notes  and  Bills,  597.  Why  can  he  recover  it  back  ? 
Simply  because  there  was  no  consideration  for  its  payment.  He 
supposed  he  was  getting  a  valid  and  genuine  instrument,  when, 
instead,  he  got  a  forged  and  worthless  piece  of  paper.  Suppose, 
instead  of  having  paid  money  for  the  forged  paper,  he  had  given 
up  a  note  or  bill  which  he  held,  would  there  be  any  consideration 
for  that  act  ?  Would  he  be  bound  to  lose  his  right  of  action  any 
more  than  he  would  be  bound  to  lose  the  money  which  he  had 
paid  for  the  forged  paper  ?  Surely  not. 

We  are  satisfied  that  there  is  no  error  in  the  record  in  this 

case. 

Judgment  affirmed,  with  costs. 


M'DOUGALL  v.  WALLING.  239 

McDOUGALL  v.  WALLING.     1896. 
15  Wash.  78;  45  Pac.  Rep.  668;  55  Am.  St.  Eep.  871. 

Appeal  from  superior  court,  Snohomish  county ;  JOHN  C.  DEN- 
NEY,  Judge. 

Action  by  Malcolm  McDougall  against  N.  D.  Walling  and  Wil- 
liam G.  Swalwell.  From  a  judgment  dismissing  the  action  as  to 
defendant,  Swalwell,  plaintiff  appeals.  Reversed. 

GORDON,  J.  Appellant,  McDougall,  brought  this  action  in  the 
superior  court  of  Snohomish  county  upon  a  promissory  note  ex- 
ecuted by  N.  D.  Walling  and  William  G.  Swalwell,  payable  to 
the  order  of  Walling,  dated  April  24,  1893,  and  payable  90  days 
thereafter ;  said  note  being  for  the  sum  of  $2,800,  and  interest  at 
the  rate  of  12  per  cent,  per  annum  from  date  until  paid.  The 
defendant,  Walling,  made  default.  Respondent,  Swalwell,  an- 
swered that  he  executed  the  note  solely  for  the  accommodation 
of  Walling,  and  was  a  surety  only,  all  of  which  was  known  to 
plaintiff  at  the  time  of  the  indorsement  and  delivery  of  said 
note  to  him  by  Walling ;  that,  after  the  maturity  of  the  note,  ap- 
pellant entered  into  a  definite  agreement  with  the  defendant, 
Walling,  whereby  the  time  of  payment  of  said  note  was  extend- 
ed, and  that  the  agreement  to  extend  was  made  without  the  con- 
sent of  the  respondent,  and  released  him  from  the  payment  there- 
of. The  appellant  replied,  denying  all  of  the  affirmative  matter 
set  out  in  the  answer,  and,  the  cause  having  been  tried  before  a 
jury,  a  verdict  was  returned  in  favor  of  Swalwell.  Thereafter, 
appellant's  motion  for  a  new  trial  was  denied,  judgment  entered 
dismissing  the  action  as  to  Swalwell,  and  the  cause  appealed. 

The  undisputed  testimony  in  the  case  shows  that,  shortly  after 
the  execution  of  the  note,  Walling  sold  the  same  to  the  appellant, 
and  that,  prior  to  becoming  the  owner  thereof,  appellant  had  no 
conversation  whatever  with  respondent,  Swalwell.  At  the  time 
of  its  maturity,  or  within  a  few  days  thereafter,  Walling  request-  ~ 
ed  an  extension.  It  further  appears  that  the  sum  of  $200  was 
paid  by  him  at  that  time  to  the  appellant,  for  the  purpose,  as  tes- 
tified by  Walling,  of  paying  the  interest  then  due  on  the  note, 
amounting  to  about  $75,  and  the  balance  as  consideration  for  an 
extension  of  the  note  for  a  period  of  30  days,  or  until  August  24, 
1893.  The  appellant,  in  his  testimony,  admitted  the  receipt  from 
Walling  of  $200  for  the  purpose  of  paying  the  interest  then  due 


240  CHANGE  OP  CONTRACT. 

upon  the  note,  and  the  remainder  as  consideration  for  his  agree- 
ing to  postpone  suit  on  the  note  until  August  24,  1893.  He 
further  testified  that  this  arrangement  was  entered  into  upon  the 
representation  of  Walling  that  he  came  with  instructions  from 
Swalwell  to  get  the  time  extended ;  that  he,  Swalwell,  was  a  bank- 
er at  Everett ;  that ' '  it  was  panicky  times,  and  he  could  not  draw 
the  money  ....  out  of  the  bank.  .  .  .  He  pleaded  very 
hard  for  Mr.  Swal well's  credit,"  and  "I  finally  consented  that  I 
would  not  start  an  action  for  a  certain  length  of  time.  .  .  He 
stated  most  distinctly  that  he  came  down  with  Mr.  Swalwell 's 
sanction  and  consent."  Counsel  for  the  respondent,  Swalwell, 
objected  to  the  introduction  of  any  testimony  as  to  what  Walling 
said  to  appellant,  because  not  made  in  the  presence  of  Swalwell, 
etc.,  and  the  lower  court  thereupon  held  that  said  statements 
were  not  competent  as  against  Swalwell;  adding:  "I  will  allow 
him  to  state  what  was  said  there,  but  will  cover  it  with  instruc- 
tions to  the  jury  afterwards ; ' '  and  thereafter  the  court  charged 
the  jury  in  respect  thereto  as  follows:  "You  are  further  in- 
structed that  when  it  is  sought  to  bind  the  defendant  by  state- 
ments made  by  a  third  party,  not  in  the  presence  of  the  defendant 
sought  to  be  charged,  it  must  be  shown,  not  only  that  such  state- 
ments were  so  made,  but  it  must  be  further  shown  that  such  third 
party  was  authorized  to  make  such  statements  by  the  party 
sought  to  be  charged. ' '  To  this  ruling,  and  the  giving  of  the  in- 
struction set  out,  appellant  excepted,  and  has  assigned  the  same 
as  error. 

We  think  that  the  testimony  was  competent,  and  should  have 
been  permitted  to  go  to  the  jury.  An  agreement  between  a  prin- 
cipal debtor  and  the  holder  of  a  note,  to  extend  the  time  of  pay- 
ment for  a  definite  period  after  maturity,  in  order  jo  release  the 
surety,  must  be  such  an  agreement  as  the  principal  debtor  could 
himself  enforce.  The  representation  by  Walling  (assuming  that 
it  vras  made),  that  Swalwell  requested  and  consented  to  the  ex- 
tension which  was  sought  became  material,  because,  assuming 
that  Swalwell  was  a  surety  merely,  the  representation,  if  false  in 
fact,  was  fraudulent  means  employed  in  obtaining  it.  If,  on  the 
other  hand,  the  representation  was  made  by  Walling  upon  au- 
thority from  Swalwell,  or  if  Swalwell  subsequently  consented  to 
the  extension  so  obtained,  he  would  not  be  released,  assuming  that 
he  was  a  surety  only,  and  that  appellant  had  knowledge  of  that 
fact. 


M'DOUGALL  v.  WALLING.  241 

The  question  here  presented  was  involved  in  Bangs  v.  Strong, 
10  Paige,  11.  It  was  there  held  that  where  an  "agreement  is  ob- 
tained from  the  creditor  by  a  principal  debtor  upon  the  false 
representation  of  the  latter  that  the  surety  had  authorized  him 
to  make  it,  and  the  surety  afterwards  refuses  to  assent  to  the 
agreement,  the  creditor  will  be  at  liberty  to  repudiate  it.  .  .  . " 

It  is  further  insisted  by  appellant  that  the  evidence  was  insuffi- 
cient to  justify  the  verdict.  We  think,  however,  that,  upon  the 
material  issues,  the  testimony  was  sufficiently  conflicting  to  re- 
quire its  submission  to  the  jury  under  proper  instructions.  As 
the  cause  must  be  retried,  however,  we  deem  it  proper  to  say  that 
instructions  Nos.  8  and  9,  which  were  excepted  to  by  appellant, 
should  not,  in  our  opinion,  have  been  given.  They  are  incom- 
plete, and,  in  a  measure,  inconsistent  with  instructions  1-3,  given 
by  the  court,  which  correctly  stated  the  law.  Whether  the  giving 
of  these  instructions  constituted  such  error  as  would  require 
a  reversal  of  the  cause,  we  are  not  called  upon  to  determine. 

As  a  new  trial  must  be  had,  we  think  that,  in  order  to  fully  de- 
termine the  rights  of  parties,  special  findings  should  be  required 
of  the  jury,  as  provided  in  section  375,  2  Hill's  Code;  and,  if  the 
jury  find  that  respondent,  Swalwell,  was  merely  surety  for  Wall- 
ing, and  that  appellant  knew  of  that  fact  at  or  prior  to  the  time 
of  the  purported  extension,  then  they  should  be  required  to  find 
whether  such  extension  was  secured  wholly  or  in  part  by  means 
of  Walling 's  falsely  representing  that  Swalwell  consented  there- 
to; and,  if  the  jury  shall  find  that  such  representations  were 
made,  then  the  appellant  would  be  entitled  to  recover  the  amount 

§he  note,  with  interest  from  July  23,  1893,  less  the  sum  of 
\i)  withheld   as   bonus  or   consideration   for   the   extension 
granted  which  last  mentioned  sum  it  would  be  the  right  of  the 
respondent  to  have  treated  as  a  partial  payment  upon  the  note. 

Reversed  and  remanded. 

SCOTT,  DUNGEB,  and  ANDERS,  JJ.,  concur.  HOYT,  C.  'J.,  con- 
curs in  the  result. 


16 


242  CHANGE  OP  CONTRACT. 

d.  An  agreement  to  extend  time  of  payment  in  consideration  of 
a  part  payment  of  a  debt  already  due  is  void  for  want  of  con- 
sideration and  will  not  release  the  surety. 

OBEKNDORF  v.  UNION  BANK.     1869. 
31  Md.  126;  1  Am.  Rep.  51. 

Appeal  from  the  superior  court  of  Baltimore  city. 

In  1860  the  firm  of  Stettheimer  &  Affelder  assigned  to  the  ap- 
pellee certain  collaterals  to  secure  any  liability  then  existing  or 
to  arise  thereafter,  with  full  power  to  the  assignee  to  collect  or' 
compromise  such  collaterals  if  said  firm  made  default,  and  apply 
the  proceeds  upon  the  firm's  liability.  In  1862  the  firm  failed, 
and  in  October  of  that  year  made  a  deed  of  trust  of  all  their 
property  to  the  appellant  for  the  benefit  of  their  creditors;  at 
that  time  the  appellee  had  on  hand  a  portion  of  the  said  collater- 
als, among  which  was  a  note  jofJWeiller  Brothers^  Co.,  which 
had  matured  January  11, 1862,  and  was  in  1865  compromised  by 
the  appellee  with  them  for  fifty  cents  on  the  dollar. 

A  part  of  the  liability  of  the  first  named  firm  to  the  appellees 
consisted  of  certain  notes  amounting  to  $3,186.42,  drawn  by 
^Steiner  Brothe^_^Co. ,  and  discounted  for  said  firm  of  S.  &  A. 
by  the  appellees.  These  notes  were  compromised  with  said  Stein- 
er  Brothers  in  1865,  for  fifty  cents  on  the  dollar.  One  other  note, 
drawn  by  A.  Heilbrun,  and  discounted  for  said  firm,  was  also  set- 
tled for  fifty  cents  on  the  dollar. 

"""The  appellee  had  also  discounted  for  Frick,  Phillips  &  Co.,  a 
note  of  S.  &  A.,  to  the  payment  of  which  it  applied  money  real- 
ized from  the  collaterals.  The  appellee  collected  enough  to  pay 
the  liabilities  of  the  firm  of  S.  &  A.  to  it  in  full,  and  in  1866 
delivered  to  the  appellant  the  remainder  of  the  collaterals  which 
were  not  collected. 

The  opinion  sufficiently  shows  the  questions  at  issue. 

ALVEY,  J.,  delivered  the  opinion  of  the  court. 

There  is  no  doubt  of  the  general  proposition,  that  if  the  cred- 
itor release  or  compound  with  the  principal  debtor,  without  the 
consent  of  the  surety,  although  the  principal  debtor  may  be  in 
insolvent  circumstances,  and  the  arrangement  with  him  be,  in 
truth,  to  the  surety's  advantage,  it  will  nevertheless  discharge  the 
latter  from  all  responsibility.  The  question  whether  the  surety 
has  been,  in  point  of  fact,  actually  damnified  by  such  dealing 


OBERNDORF  v.  UNION  BANK.  243 

with  the  principal  debtor  is  not  open  to  inquiry.  It  is  his  right 
to  determine  for  himself  what  is,  or  is  not,  for  his  benefit.  He 
must  be  left  free  to  consider  whether  he  will  have  recourse  to  his 
remedy  against  his  principal  or  not;  and  if,  by  any  act  of  the 
creditor,  this  right  be  taken  from  him,  the  law  allows  him  to  elect 
to  consider  himself  discharged  from  the  contract  altogether. 
"For  it  is,"  says  Lord  Loughborough,  in  the  leading  case  of 
Rees  v.  Berrington,  2  Ves.  Jr.  540,  "the  clearest  and  most  evident 
equity  not  to  carry  out  any  transaction  without  the  privity  of  him 
who  must  necessarily  have  a  concern  in  every  transaction  with  the 
principal  debtor.  You  cannot  keep  him  bound  and  transact  his 
affairs  (for  they  are  as  much  his  as  your  own)  without  consulting 
him.  You  must  let  him  judge  whether  he  will  give  that  indul- 
gence contrary  to  the  nature  of  his  engagement. ' ' 

But,  while  such  is  the  rule,  before  a  surety  or  indorser  can  be 
exonerated  from  his  responsibility  upon  the  ground  that  there  has 
been  an  unauthorized  indulgence  given,  or  composition  made 
with,  the  principal  debtor,  it  must  be  shown  that  such  indul- 
gence or  composition  has  been  effected  by  some  express  agree- 
ment, founded  upon  a  valid  consideration,  and  which  is  legally 
binding  on  the  creditor.  Without  sufficient  consideration,  the 
agreement  would  be  a  nullity,  and  consequently  would  bind  no 

one.     And  the  first  question  in  this  case  is,  whether  the  com- 

~ 

promises  and  settlements  made  by  the  bank  with  Steiner  Brothers 
&  Co.,  and  with  Heilbrun,  whereby  fifty  cents  on  the  dollar  were 
received  on  the  notes  discounted  for  Stettheimer  &  Affelder,  had 
in  them  the  elements  of  binding  contract,  and  such  as  could  be  en- 
forced by  the  parties  either  as  a  defense  or  as  a  cause  of  action ; 
for  if  not,  Stettheimer  &  Affelder  remained  bound  as  indorsers, 
notwithstanding  the  arrangement  made  by  the  bank  with  the 
makers  of  the  notes. 

There  is  no  principle  better  established  than  that  part  payment 
of  the  amount  due,  whether  by  principal  or  surety,  will  not  dis- 
charge the  surety,  even  where  it  is  agreed  that  such  part  payment 
shall  have  that  effect;  for  the  surety  being  equally  bound  with 
the  principal  for  the  payment  of  the  whole,  neither  can  be  dis- 
charged upon  the  payment  of  less  than  the  whole,  except  it  be 
by  some  agreement  founded  upon  a  valid  and  sufficient  considera- 
tion. Where  a  party  is  bound  to  pay  a  certain  sum,  there  is  no 
consideration  in  contemplation  of  law  for  a  promise  that  a 
less  sum  shall  be  received  in  satisfaction.  Geiser  v.  Kershner,  4 


244  CHANGE  OF  CONTRACT. 

Gill  &  Johns.  305;  Fitch  v.  Sutton,  5  East,  230;  Wilkinson  v. 
Byers,  1  A.  &  F.  106 ;  Cotton  v.  Godwin,  7  M.  &  Wels.  147 ;  Lin- 
coln v.  Bassett,  23  Pick.  154. 

In  this  case  the  notes,  at  the  time  when  the  compromises  were 
made,  were  overdue,  and  it  does  not  appear  that  there  was  any 
legal  consideration  whatever  for  the  relinquishment,  on  the  part 
of  the  bank,  of  the  balance  due  on  them,  after  the  receipt  of  one- 
half  their  face  value.  There  was  no  deed  of  composition  with 
creditors,  nor  any  release  under  seal  given  by  the  bank  which 
would  have  imported  consideration.  And  in  the  absence  of 
some  sufficient  consideration,  such  an  agreement  as  that  proved 
on, the  part  of  the  appellant,  and  set  out  in  his  prayers,  made 
merely  by  parol,  is  wholly  inoperative,  and  cannot  be  set  up 
or  relied  on  by  the  makers  of  the  notes,  either  as  against  the  bank 
or  the  indorsers.  The  notes  have  never  in  fact  been  surrendered 
to  the  makers,  and  the  bank  was  not  bound  to  any  active  dili- 
gence in  their  collection,  in  order  to  give  it  the  benefit  of  the  col- 
laterals deposited  with  it  by  the  indorsers. 

This  view  of  the  ease  disposes  of  the  first,  second  and  third 
prayers  of  the  appellant. 

His  fourth  prayer  we  understand  to  be  abandoned.  It  might 
well  be  so,  because  the  note  therein  referred  to  was  clearly  within 
the  terms  of  the  contract  of  the  16th  of  May,  1860,  and  the  bank 
was  well  warranted  in  applying  the  proceeds  of  the  collateral  se- 
curities to  its  payment. 

As  to  the  fifth  and  sixth  prayers  of  the  appellant,  relating  to 
the  bank 's  holding  and  dealing  with  the  collateral  securities,  aft- 
er full  payment  of  its  claim  on  account  of  discounts,  they  were 
properly  granted.  For  any  loss  or  injury  sustained  by  reason  of 
misapplication  of  the  collaterals  by  the  bank,  or  its  failure  to  ac- 
count after  applying  in  good  faith  a  sufficient  amount  of  such  col- 
laterals to  pay  its  claims  against  Stettheimer  &  Affelder,  the  ap- 
pellant was  certainly  entitled  to  recover.  And  while  these  pray- 
ers secured  to  the  appellant  the  full  benefit  of  that  inquiry  before 
the  jury,  it  is  no  objection  to  them,  that  can  be  taken  by  the  ap- 
pellant, that  they  were  granted  in  connection  with  objectionable 
prayers  offered  by  the  appellant  and  modified  by  the  court,  and 
which  opened  a  wider  scope  of  inquiry  for  the  appellant's  benefit. 

The  court  below  is  right  in  granting  the  appellee 's  first  prayer, 
as  being  the  converse  of  the  appellant's  fourth,  which  was  not 
maintainable,  as  we  have  seen. 


MULLENDORE  v.  WERTZ.  245 

The  appellee's  second  prayer,  however,  should  have  been  re- 
fused, though,  in  the  view  we  have  of  this  case,  the  granting  of  it 
was  by  no  means  prejudicial  to  the  appellant;  but,  on  the  con- 
trary, was  a  concession  to  him  of -ground  of  recovery,  which  he 
was  not  entitled  to  occupy  before  the  jury.  The  action  of  the 
court,  therefore,  in  granting  this  prayer,  is  no  cause  for  reversal. 

And  as  to  the  third  and  fourth  prayers  of  the  appellee,  we 
think  it  clear  that  the  court  was  right  in  granting  them  both. 
The  appellee  had  express  authority  to  compromise  with  parties  in- 
debted on  the  collateral  securities,  and  we  have  said  that  agree- 
ments, such  as  that  stated  in  the  fourth  prayer,  were  inoperative 
for  want  of  sufficient  legal  consideration. 

Judgment  affirmed. 


e.  In  order  that  an  extension  in  time  of  payment  should  work 
a  release  of  the  surety  the  relation  of  the  surety  to  the  debt 
must  have  been  known  to  the  creditor  at  time  of  extension. 

MULLENDORE  v.  WERTZ.    1881. 
75  Ind.  431;  39  Am.  Eep.  155. 

Action  on  a  promissory  note.  The  opinion  states  the  case.  The 
plaintiff  had  judgment  below. 

MORRIS,  C.  This  suit  was  brought  upon  the  following  promis- 
sory note: 

"February  14,  1877. 

' '  One  year  after  date  we  promise  to  pay  John  Wertz,  or  order, 
eight  hundred  dollars  and  eighty  cents,  with  interest  at  ten  per 
cent,  per  annum  after  maturity,  and  with  attorneys'  fees,  value 
received,  and  without  any  relief  whatever  from  valuation  and 
appraisement  laws. 

"$800.80.  CLINTON  MULLENDORE. 

GEORGE  MULLENDORE." 

Clinton  Mullendore  made  default.  George  Mullendore  an- 
swered the  complaint  in  four  paragraphs.  The  first  was  the  gen- 
eral denial,  which  was  afterward  withdrawn. 

The  second  paragraph  admits  the  execution  of  the  note,  but 
avers  that  George  Mullendore  executed  it  as  the  surety  of  Clinton 
Mullendore,  which  fact  was  known  to  the  appellee;  that  after- 


246  CHANGE  OF  CONTRACT. 

ward,  with  such  knowledge  and  without  the  pleader's  consent  or 
knowledge,  the  appellee  agreed  with  Clinton  Mullendore,  for  a 
sufficient  consideration,  to  extend  the  time  for  the  payment  of 
said  note  for  the  period  of  four  months  from  the  time  of  its  ma- 
turity; that  hy  this  agreement  he  had  been  released  and  dis- 
charged from  liability  on  said  note. 

The  third  and  fourth  paragraphs  of  the  answer  were,  in  sub- 
stance, the  same  as  the  second. 

The  appellee  demurred  separately  to  each  paragraph  of  the 
answer.  The  demurrer  was  overruled.  He  then  replied  to  the 
answer  in  four  paragraphs,  the  last  being  a  general  denial.  The 
appellant,  George  Mullendore,  demurred  to  the  first,  second  and 
third  paragraphs  of  the  reply.  The  demurrers  were  overruled. 
The  cause  was  submitted  to  a  jury,  who  returned  a  verdict  for 
the  appellee.  The  appellant,  George  Mullendore,  moved  the  court 
for  a  new  trial,  which  was  overruled,  and  judgment  was  rendered 
upon  the  verdict. 

The  rulings  of  the  court  upon  the  several  demurrers  to  the  re- 
ply, and  upon  the  motion  for  a  new  trial,  are  assigned  as  errors. 
George  Mullendore  alone  appeals. 

The  first  paragraph  of  the  reply  admits,  that  on  the  2d  day  of 
February,  1878,  in  consideration  of  $26.33,  paid  to  the  appellee 
by  Clinton  Mullendore,  being  the  interest  in  advance  on  the 
note  for  four  months,  he  agreed  to  extend  the  time  for  the  pay- 
ment of  the  note  for  four  months,  as  stated  in  the  appellant 's  an- 
swer, but  it  was  also  averred  that  at  the  time  of  making  said 
agreement  the  appellee  had  no  knowledge  of  the  fact  that  the 
appellant,  George  Mullendore,  was  or  claimed  to  be  the  surety  of 
Clinton  Mullendore  on  said  note,  as  stated  in  said  answer. 

The  question  raised  by  the  demurrer  to  this  paragraph  of  the 
reply  is/^oes  an  agreement  made  between  the  payee  and  one  of 
two  joint  makers  of  a  note,  without  the  knowledge  or  consent  of 
the  other,  who  is  in  fact  the  surety  of  his  co-maker,  have  the  ef- 
fect to  release  the  non-consenting  joint  maker  from  his  liability, 
though  the  payee  of  the  note  was,  at  the  time  of  making  the 
agreement,  ignorant  of  the  fact  that  he  was  such  surety^  If  this 
proposition  is  to  be  answered  in  the  affirmative,  as  the  appellant 
insists  it  should  be,  the  reply  is  bad,  and  the  demurrer  should 
have  been  sustained ;  if  in  the  negative,  the  reply  is  sufficient  and 
the  demurrer  was  rightly  overruled. 

The  appellant  insists  upon  the  following  propositions : 


MULLENDORE  v.  WERTZ.  247 

First.  That  the  verbal  contract  set  up  in  the  answer,  and  ad- 
mitted by  the  reply,  changed  the  contract  evidenced  by  the  note 
in  a  material  part. 

Second.  That  one  of  two  joint  co-obligors  is  not  authorized, 
without  the  consent  of  the  other,  to  change  the  joint  contract  in 
any  respect ;  and  if  he  does,  by  a  valid  agreement,  so  change  the 
contract,  the  non-consenting  obligor  is  discharged. 

The  agreement  alleged  to  have  been  made  for  the  extension  of 
the  time  for  the  payment  of  the  note  in  suit  is  averred  to  have 
been  made  between  the  appellee  and  Clinton  Mullendore.  The 
consideration  for  the  alleged  extension  was  paid  by  Clinton  Mul- 
lendore, not  by  George  Mullendore,  nor  by  them  jointly,  but  by 
Clinton  alone.  George  Mullendore  was  not  a  party  to  the  con- 
tract. The  contract  should  therefore  be  construed  as  the  agree- 
ment and  promises  of  the  parties  who  entered  into  it;  and  for 
jiny  violation  of  the  terms  of  the  agreement  or  any  promise  or 
covenant  contained  in  it,  the  offending  party  would  be  personally 
liable  to  the  injured  party,  and  to  him  alone.  The  agreement  of 
the  ajppellee  must  be  construed  as  made  for  the  benefit  of  Clinton 
Mullendore  alone,  and  in  case  of  its  breach  he  alone  would  have 
the  right  to  sue  the  appellee  and  recover  such  damages  as  he 
might  have  sustained. 

In  the  case  of  Draper  v.  Weld,  13  Gray,  580,  the  court  say:  "If 
as  between  McGregory  and  Stevens,  they  were  co-sureties  of 
"Weld,  the  giving  of  time  to  one  of  them  did  not  discharge  the 
other,  because  the  mere  giving  of  time  to  one  of  two  obligors, 
whose  obligations  are  equal,  will  not  discharge  the  other.  Dunn 
v.  Slee,  Holt,  N.  P.  399,  and  1  Moore,  2-  Burge  on  Suretyship, 
156.  Giving  time  by  oral  agreement  to  McGregory  can  not  have 
any  greater  legal  effect  than  a  covenant  by  a  creditor  not  to  sue, 
for  a  specified  time,  one  of  two  or  more  joint  debtors.  Such  a 
covenant  is  not  a  release,  and  it  furnishes  no  defense  to  the 
other  debtors.  Lacy  v.  Kynaston,  12  Mod.  548;  Dean  v.  New- 
hall,  8  T.  R.  168 ;  Shed  v.  Peirce,  17  Mass.  623 ;  Wilson  v.  Foot, 
11  Met.  285."  The  verbal  agreement  can  not,  we  think,  be  held 
to  have  discharged  George  Mullendore  on  the  ground  that  it 
changed  the  contract  evidenced  by  the  note  in  a  material  part. 

In  case  of  Wilson  v.  Foot,  supra,  it  is  held  that  where  a  note  is 
signed  by  several  parties,  though  part  of  them  are  in  fact  sureties 
for  the  others,  yet  if  that  does  not  appear  upon  the  face  of  the 
note,  the  payee  does  not  discharge  the  sureties  by  giving  tune  to 


248  CHANGE  OF  CONTRACT. 

the  principal  debtor,  unless  .he  had  knowledge,  at  the  time  of  so 
doing,  that  the  other  makers  were  sureties ;  and  that  such  knowl- 
edge is  not  to  be  presumed  in  favor  of  the  sureties,  .but  must  be 
proved ;  that  a  covenant  not  to  sue  one  or  more  joint  makers  of  a 
note  does  not  discharge  or  release  the  others,  it  being  regarded  as 
a  mere  personal  covenant.  2  Dan.  Neg.  inst.,  289.  There  are 
many  decisions  of  this  court  in  full  agreement  with  the  above 
cases.  McCloskey  v.  Indianapolis,  etc. ;  Union,  67  Ind.  86 ;  s.  c., 
33  Am.  Rep.  76;  Davenport  v.  King,  63  Ind.  64;  Huff  v.  Cole, 
45  id.  300. 

In  the  case  of  Davenport  v.  King,  supra,  the  court,  quoting 
from  Neel  v.  Harding,  2  Met.  (Ky.),  247,  says:  "If  they  were 
all  principals,  an  agreement  with  one  of  them  to  give  further  day 
of  payment  would  not  operate  to  release  or  exonerate  the  others. 
Such  an  agreement  cannot  be  allowed  to  have  any  more  effect 
than  it  would  have  had  if  the  promisors  were  all  actually,  as  they 
all  appear  to  be,  principals  in  the  note,  unless  the  holder,  at  the 
time  he  entered  into  the  agreement,  had  notice  that  the  parties 
who  claimed  to  be  sureties  did  occupy  that  attitude  on  the  pa- 
per." 

In  some  of  the  paragraphs  of  the  answer,  the  agreement  to  ex- 
tend the  time  of  p_ayjn£nt  is  alleged  to  have  been  made  before  the 
maturity  of  the  note.  This  can  make  no  difference.  The  agree- 
ment was  the  agreement  only  of  the  parties  to  it.  The  note  still 
remains  in  full  force,  unaffected  by  the  agreement  for  the  exten- 
sion of  the  time  of  payment.  We  have  examined  the  authorities 
referred  to  by  the  appellant's  counsel,  and  think  them  not  op- 
posed to  the  conclusion  which  we  have  reached. 

In  the  case  of  Hall  v.  Hall,  34  Ind.  314,  the  Halls  borrowed 
$100,  and  each  was  to  have  $50.  This  fact  distinguishes  that 
from  the  case  now  before  us.  In  the  case  of  Crafts  v.  Mott,  4 
N.  Y.  603,  the  land,  for  the  purchase  of  which  the  instrument  was 
given,  was  equally  divided  between  the  purchasers,  and  this  was 
held  to  operate  as  a  division  of  the  debt.  Each  of  the  makers 
was  regarded  as  principal  debtor  for  one-half  of  the  land  pur- 
chased, and  surety  as  to  the  other  half. 

In  the  case  of  Cheetham  v.  Ward,  1  B.  &  P.  630,  one  of  the 
joint  obligors  had  been  appointed  executor  of  the  obligee,  and 
thereby  discharged.  This  was  held  to  discharge  the  other  obli- 
gor. In  the  case  of  Rees  v.  Berrington,  2  Ves.  Jr.  540,  it  was 
held  that  where  the  creditor,  without  the  consent  of  the  known 


LEITHAUSER  v.  BAUMEISTER.  249 

surety,  gave  further  time  to  the  principal,  the  surety  was  dis- 
charged. None  of  these  cases  is  irreconcilable  with  the  cases  to 
which  we  have  referred  in  support  of  our  conclusion.  The  court 
did  not  err  in  overruling  the  demurrer  to  the  first  paragraphs 
of  the  reply. 

(Omitting  other  questions.) 

It  is  ordered,  upon  the  foregoing  opinion,  that  the  judgment 
below  be  in  all  things  affirmed,  at  the  costs  of  the  appellant. 

Order  affirmed. 


LEITHAUSER  v.  BAUMEISTER.     1891. 
'47  Minn.  151;  49  N.  W.  Rep.  660;  28  Am.  St.  Rep.  336. 

Appeal  from  municipal  court  of  St.  Paul,  Cory,  Judge. 

Action  by  Matt  Leithauser  against  William  Baumeister  and 
others.  Judgment  for  plaintiff.  Defendants  appeal.  Reversed. 

DICKINSON,  J.  Prior  to  November  30,  1887,  the  three  defend- 
ants were  copartners,  engaged  in  business  under  the  name  of 
John  Comes  &  Co.,  and  as  such  copartners  they  were  indebted 
to  a  partnership  firm  (Matt  Leithauser  &  Co.),  to  whose  rights 
the  plaintiff  has  succeeded  in  the  sum  of  $280.  The  partnership 
was  dissolved  at  time  above  stated.  This  action  is  to  recover  on 
that  indebtedness.  The  defendants,  Nagler  and  Baumeister, 
plead  in  defense  that,  by  a  contract  between  the  defendants  at 
the  time  of  the  dissolution,  Comes  became  obligated  to  pay  this 
debt;  that  after  the  dissolution  Comes  formed  another  partner- 
ship with  one  Schneider,  under  the  same  partnership  name  as 
that  of  the  former  firm,  John  Comes  &  Co.,  all  of  which,  as  is 
alleged,  was  known  to  the  plaintiff;  and  that  he  accepted  from 
Comes  a  promissory  note  of  the  new  firm,  signed  in  its  partner- 
ship name,  payable  90  days  thereafter,  in  satisfaction  of  the  in- 
debtedness of  the  defendants.  The  court  found  in  general  terms 
that,  except  as  to  the  allegation  of  the  dissolution  of  the  'de- 
fendants' partnership,  the  allegations  of  the  answer  were  not 
proved.  This  finding  was  erroneous  in  some  particulars,  and 
it  cannot  be  said  that  the  erroneous  conclusion  may  not  have 
affected  the  decision  of  the  case.  The  evidence  conclusively 
showed,  and  without  dispute,  not  only  that  the  partnership  of 
the  defendants  had  been  dissolved  when  (as  the  fact  is  admitted 


250  CHANGE  OF  CONTRACT. 

to  have  been)  the  plaintiff  in  February,  1888,  took  from  Comes 
a  note,  signed  in  the  partnership  name  of  that  firm,  for  the 
amount  of  the  debt,  payable  90  days  after  date,  with  interest 
at  the  rate  of  8  per  cent,  per  annum,  but  that  a  settlement  had 
been  made  between  the  copartners,  and  an  agreement  entered 
into  which,  as  between  themselves,  obligated  Comes  to  pay  this 
partnership  debt  to  the  plaintiff.  Moreover,  the  evidence  on 
the  part  of  the  defendants  (appellants)  went  to  show  that  the 
plaintiff  had  been  informed  of  this  fact,  and  this  is  not  really 
controverted  in  the  evidence  on  the  part  of  the  plaintiff.  On  the 
contrary,  he  admits  in  his  testimony  that  he  "knew  of  the  settle- 
ment they  had,"  but  did  not  know  of  the  dissolution  of  the  part- 
nership. He  admits  that  "Comes  gave  the  note  in  the  partner- 
ship name,  because  he  said  he  did  not  want  to  stand  by  his 
agreement  with  the  other  parties  because  they  did  not  stand  by 
theirs.  .  .  .  He  did  not  want  to  pay  this  claim  all  by  himself, 
because  they  didn't  live  up  to  their  agreement."  "We  think  that 
the  case  showed,  contrary  to  the  finding  of  the  court,  both  that 
Comes  had  assumed  the  obligation,  as  respects  the  other  defend- 
ants, of  paying  this  debt,  and  that  the  plaintiff  was  informed  of 
it  when  he  took  from  Comes  the  note,  in  form  expressing  the 
obligation  of  the  partnership,  payable  at  a  future  day,  at  a  rate 
of  interest  in  excess  of  what  the  law  would  allow  in  the  absence 
of  express  agreement.  These  facts  are  material.  While  such  an 

/agreement  between  the  joint  debtors,  to  which  the  plaintiff  was 
not  a  party,  could  not  prejudice  him  or  affect  his  right  of  action 
against  them  all,  yet  it  would  affect  the  rights  of  the  parties 
growing  out  of  any  new  contract  which  he,  having  knowledge  of 
such  agreement  between  the  defendants,  might  thereafter  make 
with  one  of  them.  "When  Comes  took  upon  himself  the  legal  obli- 
gation of  the  defendants  to  pay  this  debt,  they  occupied  towards 
him  the  position  of  sureties ;  and  the  creditor,  knowing  the  fact, 
should  not  be  allowed  to  make  a  new  contract  extending  the 
time  for  payment,  without  their  consent.  Millerd  v.  Thorn,  56 
N.  Y.  402;  Smith  v.  Shelden,  35  Mich.  42;  Oakeley  v.  Pasheller, 
10  Bligh,  (N.  S.)  548,  589.  If  the  plaintiff  knew  that  Comes 
had  thus  assumed  the  payment  of  this  debt,  he  must  be  deemed 
to  have  known  that  the  mere  general  partnership  relation  which 
he  may  have  supposed  to  be  still  existing  did  not  authorize 
Comes  to  give  the  note  of  the  partnership  for  a  debt  which  it 
had  become  his  own  personal  obligation  to  pay.  While  the  note, 


POST  v.  LOSEY.  251 

taken  under  those  circumstances,  would  not  be  obligatory  on  the 
other  defendants,  it  would  be  enforceable  against  Comes,  and 
would  be  effectual,  as  between  the  plaintiff  and  Comes,  as  a  new 
contract,  to  extend  the  time  for  the  payment  of  the  debt  (Whea- 
ton  v.  Wheeler,  27  Minn.  464,  8  N.  W.  Rep.  599) ;  and  that  would 
release  the  other  defendants  (see  authorities  above  cited),  even 
though  there  be  no  proof  as  to  what,  if  any,  injury  the  sureties 
may  have  suffered  (Rees  v.  Berrington,  2  Ves.  Jr.  540;  Miller 
v.  McCan,  7  Paige,  451 ;  Calvo  v.  Davies,  73  N.  Y.  211,  216).  It 
may  be  that  if  the  plaintiff  had  not  known  of  the  agreement  be- 
tween the  defendants,  and  if  he  could  be  deemed  to  have  sup- 
posed that  the  note  was  rightfully  given  as  the  note  of  the  part- 
nership, the  result  would  have  been  different.  Agnew  v.  Merritt, 
10  Minn.  308  (Gil.  242).  The  finding  of  the  court  being,  as 
we  consider,  erroneous  in  the  particulars  above  stated,  a  new 
trial  must  be  granted.  "We  observe  a  variance  between  the  proof 
and  the  answer,  in  that  the  note  given  appears  to  have  been  in- 
tended to  express  the  obligation  of  the  defendants'  former  part- 
nership, and  not,  as  alleged,  the  obligation  of  a  new  partnership, 
of  which  Comes  and  Schneider  were  members.  There  was  no 
evidence  of  the  existence  of  any  such  partnership.  It  is  not 
claimed  that  this  variance  is  material,  and  probably  it  was  not. 
It  is  only  adverted  to  here  so  that  any  doubt  concerning  it  may; 
be  avoided  if  thought  necessary. 

Order  reversed. 


f.  Property  of  one  person  pledged  for  the  payment  of  the  debt 
of  another  stands  in  the  relation  of  surety  with  all  the  rights 
of  a  surety. 

POST  v.  LOSEY.    1887. 
Ill  Ind.  75;  60  Am.  Rep.  677. 

Action  on  a  note.  The  opinion  states  the  facts.  The  defendant 
had  judgment  below. 

ZOLLARS,  C.  J.  On  the  2d  day  of  September,  1875,  Robert  C. 
Losey,  for  his  own  use  and  benefit,  borrowed  of  appellant's 
decedent,  Jacob  Hubner,  a  sum  of  money  to  be  repaid  in  three 
years. 


252  CHANGE  OF  CONTRACT. 

As  evidence  of  the  debt  created  by  the  loan,  Robert  C.  Losey 
and  his  wife,  Emma  J.,  appellee  herein,  executed  and  delivered 
to  said  decedent  a  promissory  note.  At  the  same  time,  and  to 
secure  payment  of  the  note,  Emma  J.,  her  husband,  Robert  C., 
joining,  executed  and  delivered  to  said  decedent  a  mortgage  upon 
her  separate  real  estate.  She  executed  the  note  and  gave  the 
mortgage  as  surety  for  her  husband,  and  in  no  other  capacity, 
the  money  neither  having  been  borrowed  nor  used  by  her,  nor 
used  for  her  benefit  in  any  way  to  make  her  property  primarily 
liable. 

On  the  6th  day  of  August,  1878,  Robert  C.  Losey  was  dis- 
charged in  bankruptcy  from  all  of  his  debts,  including  said' 
note. 

On  the  29th  day  of  September,  1878,  he  and  the  decedent, 
payee  of  the  note,  without  the  consent  or  knowledge  of  Emma 
J.,  entered  into  an  agreement  which  they  indorsed  upon  the 
back  of  the  note,  as  follows : 

"In  consideration  of  the  extension  of  time  for  three  years 
from  September  2,  1878,  and  the  reduction  of  the  rate  of  interest 
from  ten  per  cent  to  six  per  cent  per  annum,  I  hereby  assume 
to  pay  promptly  the  interest  at  six  per  cent  semi-annual ly,  and 
the  principal  of  the  within  note  on  or  before  September  2,  1881. 

"R.  C.  LOSEY." 

Subsequent  to  said  agreement  Robert  C.  paid  several  install- 
ments of  interest  on  the  note.  At  the  time  the  note  and  mort- 
gage were  executed,  and  at  the  time  the  above  written  agreement 
was  made,  the  payee  and  mortgagee  knew  that  Robert  C.  and 
Emma  J.  Losey  were  husband  and  wife;  that  the  real  estate 
mortgaged  was  her  separate  property,  and  that  she  executed 
the  note  and  mortgage  as  surety  for  her  husband,  and  in  no  other 
capacity. 

The  above  are  substantially  the  facts  specially  found  by  the 
court  below.  Upon  those  facts  the  court  rendered  judgment  in 
favor  of  the  plaintiff,  against  Robert  C.  Losey,  for  the  amount 
of  the  note,  and  for  Emma  J.  for  costs,  having  concluded  as  a 
matter  of  law,  that  by  reason  of  the  foregoing  facts,  the  mork 
gage  was  discharged  and  satisfied,  and  her  real  estate  released. 

The  question  for  decision  here  concerns  the  rights  of  the 
wife,  Emma  J.  Under  the  present  statutes,  a  wife  may  not 
mortgage  her  separate  property  to  secure  her  husband's  debts. 


POST  v.  LOSEY.  253 

The  mortgage  in  suit  was  executed  in  1875.  Under  the  statutes 
then  in  force,  such  a  mortgage  was  valid.  Its  validity  was  not 
affected  by  the  change  in  the  statutes.  It  is  well  settled  that 
a  wife  who  has  mortgaged  her  separate  property  for  her  hus- 
band's debt,  when  she  may  do  so,  is  in  the  position  of  a  surety, 
and  entitled  to  all  the  rights  of  a  surety,  and  that  her  liability 
and  the  mortgage  lien  are  discharged  by  an  extension  of  time 
of  payment  without  her  consent,  if  the  extension  be  a  binding 
obligation  upon  the  mortgagee.  Her  rights  in  this  respect  are 
the  same  as  if  she  were  sole.  Trentman  v.  Eldridge,  98  Ind. 
525  (534),  and  the  cases  there  cited;  Bank  of  Albion  v.  Burns, 
46  N.  Y.  170;  Smith  v.  Townsend,  25  N.  Y.  479. 

Relying  upon  this  rule  of  law,  counsel  for  Emma  J.  contend 
that  the  agreement  between  the  husband  and  the  decedent,  the 
payee  indorsed  upon  the  back  of  the  note,  operated  as  an  ex- 
tension of  the  time  of  payment,  and  thus  released  her  property. 

In  response  to  that  contention,  counsel  for  appellant  contend 
in  the  first  place,  that  the  evidence  does  not  show  that  the  de- 
cedent, payee,  at  any  time  had  notice  that  Emma  J.  was  surety 
for  her  husband,  and  that  hence  she  cannot  avail  herself  of  the 
rule  which  releases  a  surety  by  an  extension  of  the  time  of 
payment,  and  in  the  second  place,  that  she  cannot  avail  herself 
of  that  rule  for  the  reason  that  the  husband  had  been  discharged 
in  bankruptcy,  and  thereby  became  a  stranger  to  the  note. 
These  in  their  order.  In  order  that  an  extension  of  the  time 
of  payment  may  release  the  surety,  it  is  essential  that  the  payee 
shall  have  knowledge  of  the  suretyship.  Davenport  v.  King, 
63  Ind.  64;  McCloskey  v.  Indianapolis,  etc.,  Union,  67  Ind.  86, 
s.  c.,  33  Am.  Rep.  76;  Arms  v.  Beitman,  73  Ind.  85;  Gipson 
v.  Ogden,  100  Ind.  20. 

When  however  a  person  accepts  a  mortgage  in  his  favor  upon 
the  separate  property  of  a  married  woman,  knowing  her  to  be 
a  married  woman,  and  that  the  property  is  her  separate  property, 
he  is  bound  to  inquire  concerning  the  consideration,  and  ascer- 
tain, if  he  may,  by  reasonable  inquiry  from  her,  whether  it  is 
for  the  benefit  of  another,  and  unless  misled  by  the  conduct 
or  representations  of  the  wife,  he  will  be  held  to  have  acquired 
knowledge  of  the  facts  which  prudent  inquiry  would  have  dis- 
covered. Cupp  v.  Campbell,  103  Ind.  213.  See  Smith  v.  Town- 
send,  supra. 

Under  this  rule,  and  under  a  less  liberal  rule,  there  is  evi- 


254  CHANGE  OF  CONTRACT. 

dence  sufficient  to  justify  the  court  below  in  finding  that  the 
payee  knew  that  Emma  J.  was  a  married  woman,  and  that  she 
was  mortgaging  her  separate  real  estate  to  secure  a  debt  of  her 
husband,  notwithstanding  she  signed  the  note  with  him.  Being 
a  married  woman,  she  was  not  personally  liable  upon  the  note. 

There  was  in  the  mortgage  an  agreement  to  pay  the  amount 
thereby  secured.  That  agreement  made  the  mortgage  effective 
so  far  as  the  right  to  foreclose  was  concerned,  but  created  no 
personal  liability  against  her.  Trentman  v.  Eldridge,  supra. 
Eobert  C.  Losey  was  discharged  in  bankruptcy  from  all  his 
debts,  including  that  for  which  the  mortgage  in  suit  was  given. 
That  discharge  released  him  absolutely  from  all  legal  and  per- 
sonal liability  upon  the  note,  and  the  agreement  to  pay  contained 
in  the  mortgage.  Root  v.  Espy,  93  Ind.  511.  Ordinarily  a 
surety  is  released  when  the  debt  for  which  he  is  surety  is  dis- 
charged, and  ordinarily  a  mortgage  given  to  secure  the  payment 
of  a  debt,  and  having  in  it  no  promise  to  pay  such  debt,  becomes 
ineffectual,  and  is  barred  when  the  debt  is  barred  or  in  any  way 
discharged.  Lilly  v.  Dunn,  96  Ind.  220;  Bridges  v.  Blake,  106 
Ind.  332. 

Those  general  rules  apply  where  the  discharge  of  the  prin- 
cipal debt  and  debtor  is  by  some  act  or  neglect  of  the  creditor, 
and  not  to  a  discharge  by  operation  of  law,  being  as  it  is,  against 
the  consent  and  beyond  the  power  of  the  creditor.  Phillips  v. 
Solomon,  42  Ga.  192.  In  speaking  of  the  rights  and  liabilities 
of  sureties,  and  the  effect  of  the  bankrupt  law  thereon,  the  court 
there  said:  "We  are  inclined  to  think  ....  that  it  was 
not  the  intent  of  Congress  to  do  anything  more  than  to  declare 
that  the  act  should  not  be  construed  so  as  to  discharge  sureties, 
and  that  this  was  done  not  so  much  to  fix  the  law  of  the  case, 
as  by  way  of  caution  to  prevent  the  act  from  being  construed 
to  have  an  effect,  that  by  its  terms  it  would  not  have.  In  other 
words,  the  contract  of  a  surety,  as  it  is  understood  in  the  com- 
mercial world,  is  always  conditioned  that  the  surety  shall  not 
be  discharged  by  the  bankruptcy  of  the  principal." 

It  was  further  said  that  the  sections  of  the  bankruptcy  law 
upon  the  subject  of  sureties  were  only  in  furtherance,  and  de- 
claratory of,  what  would  have  been  true  had  those  sections  not 
been  put  in  the  act.  The  court  also  quoted  with  approval  the 
following  from  Theobald  on  Principal  and  Surety:  "The  obli- 
gation of  the  surety  also,  in  general,  becomes  extinct  by  the 


POST  v.  LOSEY.  255 

extinction  of  the  obligation  of  the  principal  debtor.  An  excep- 
tion to  this  rule  takes  place,  whenever  the  extinction  of  the 
obligation  of  the  principal  arises  from  causes,  such  as  bankruptcy 
and  certificate,  which  originate  with  the  law,  and  not  in  the 
voluntary  acts  of  the  creditor."  See  also  Gregg  v.  Wilson,  50 
Ind.  490;  and  to  the  same  effect,  1  Pars.  Notes  and  Bills,  249; 
1  Pars.  Cont.  29 ;  Ward  v.  Johnson,  13  Mass.  148 ;  Blumenstiel 
Bankruptcy,  543. 

Whatever  may  have  been  the  purpose  or  necessity  of  it,  the 
bankrupt  law  under  which  Losey  was  discharged  provided  in 
explicit  terms,  that  no  discharge  under  it  should  release,  dis- 
charge, or  affect  any  person  liable  for  the  same  debt  for  or 
with  the  bankrupt,  either  as  indorser  or  surety,  etc.  Bump 
Bankruptcy  (9th  ed.),  732,  and  cases  there  cited.  See  also 
King  v.  Central  Bank,  6  Ga.  257 ;  Hall  v.  Fowler,  6  Hill,  630 ; 
Camp  v.  Gifford,  7  Hill,  169 ;  Knapp  v.  Anderson,  15  N.  B.  R. 
316 ;  Gregg  v.  Wilson,  supra. 

The  above  mentioned  provision  of  the  bankrupt  act,  as  in- 
terpreted by  the  courts,  and  the  general  principles  of  the  law, 
require  a  holding  here  that  the  mortgage  in  suit  was  not  dis- 
charged by  the  discharge  in  bankruptcy  of  Robert  C.  Losey, 
the  principal  debtor.  In  re  Hartel,  7  N.  B.  R.  559.  See  also 
Catterlin  v.  Armstrong,  101  Ind.  258. 

Emma  J.,  having  mortgaged  her  property  for  the  debt  of 
Robert  C.,  and  thus  occupying  the  position  of  surety,  fhe  was  . 
liable  to  her  for  whatever  might  be  collected  from  her  property 
in  payment  of  the  debt.  J  In  that  sense,  he  was  her  debtor.  She 
was  in  a  position  to  have  caused  the  debt,  to  secure  which  the 
mortgage  was  given,  to  be  proved  against  the  estate  of  the  bank- 
rupt debtor,  in  order  that  it  might  be  reduced  by  whatever 
dividends  were  made,  if  any.  Such  proof  was  expressly  author- 
ized by  the  bankrupt  law.  And  because  that  proof  might  have 
been  made,  the  discharge  of  Robert  C.  Losey  discharged  him 
from  all  liability  to  Emma  J.  by  reason  of  the  mortgage.  Blum- 
enstiel Bankruptcy,  545;  Bump  Bankruptcy,  682;  Mace  v. 
Wells,  7  How.  272;  Baker  v.  Vasse,  1  Cranch  C.  C.  194;  Hunt 
v.  Taylor,  4  N.  B.  R.  683;  Kerr  v.  Hamilton,  1  Cranch  C.  C. 
546 ;  In  re  Perkins,  10  N.  B.  R.  529 ;  Brandt  Suretyship,  §  189. 

It  results  from  what  we  have  said,  that  after  the  discharge 
of  Losey  in  bankruptcy,  he  was  neither  liable  upon  the  notes 
nor  otherwise  to  the  payee,  nor  was  he  in  any  way  liable  to 


256  CHANGE  OF  CONTRACT. 

Emma  J.,  who,  by  reason  of  the  mortgage  upon  her  separate 
property,  occupied  the  position  of  surety. 

Did  then,  the  agreement  between  the  bankrupt  debtor  and  the 
payee  and  mortgagee,  release  her  and  her  property  as  surety? 

The  rule  is  universal,  that  an  extension  of  the  time  of  payment 
by  the  creditor,  by  a  binding  contract  with  the  principal,  and 
without  the  knowledge  and  consent  of  the  surety,  will  release 
the  surety. 

While  there  is  no  substantial  disagreement  between  law  authors 
and  courts  as  to  the  reasons  upon  which  the  rule  rests,  there  is 
some  diversity  in  the  statement  of  those  reasons. 

Jt  is  sometimes  said  that  the  reason  why  an  extension  of  the 
time  of  payment  discharges  the  surety  is,  that  he  would  be  en- 
titled to  the  creditor's  place  by  substitution,  and  the  creditor, 
by  agreement  with  the  principal  debtor  for  an  extension  of  the 
time,  without  the  surety 's  consent,  disables  him  from  suing  when 
he  would  otherwise  be  entitled  to  do  so,  upon  payment  of  the 
debt.  The  case  of  Tiernan  v.  "Woodruff,  5  McLean,  350,  was 
made  to  rest  upon  that  reason.  There,  after  the  maturity  of 
the  note,  and  after  the  discharge  in  bankruptcy  of  the  principal 
debtor,  the  creditor  entered  into  a  sealed  agreement  with  him, 
without  the  knowledge  or  consent  of  the  surety,  and  ifor  a 
valuable  consideration,  that  he,  the  creditor,  would  not,  for  the 
space  of  two  months,  commence  any  proceedings  in  law  or  equity, 
or  otherwise,  against  him,  the  principal  debtor  upon  the  note. 
It  was  held  that  our  bankrupt  law  extinguished  the  debt  of 
the  bankrupt,  even  against  the  surety;  and  that  after  the  dis- 
charge of  the  principal  debtor,  the  surety  had  no  remedy  but 
to  present  his  demand  against  the  estate  of  the  bankrupt,  and 
that  he  had  no  recourse  against  the  bankrupt. 

At  the  close  of  the  opinion  it  was  said:  "The  time  given  to 
Eomeyn  (the  bankrupt),  under  these  circumstances,  by  no  pos- 
sible means  could  have  operated  to  the  prejudice  of  the  de- 
fendant (the  surety).  The  settled  rule  of  law  therefore  as  to 
the  effect  of  giving  time  to  the  principal  debtor,  does  not  and 
cannot  apply  in  this  case.  After  the  extension  complained  of, 
as  well  as  before  it,  the  indorser  could  have  proved  the  extent 
of  his  liability  against  the  bankrupt's  estate,  and  that  was  the 
only  remedy,  which  under  the  circumstances  the  law  gave  him. ' ' 

The  same  reason  for  the  rule  has  been  made  prominent  in 
some  of  our  own  cases.  In  some  of  the  cases  it  has  been  said, 


POST  v.  LOSEY.  257 

that  the  agreement  must  be  such  as  to  tie  the  hands  of  the 
principal  debtor,  and  fetter  and  embarrass  the  surety.  Wingate 
v.  Wilson,  53  Ind.  78;  Bucklen  v.  Huff,  53  Ind.  474;  Dickerson 
v.  Board,  etc.,  6  Ind.  128;  s.  c.,  63  Am.  Dec.  373;  Harbert  v. 
Dumont,  3  Ind.  346.  -.**»  ^ 

Citing  the  case  of  Tiernan  v.  Woodruff,  supra,  Judge  STORY, 
in  his  work  on  Promissory  Notes,  at  section  415,  in  speaking  of 
an  extension  of  the  time  of  payment  by  the  creditor,  said:  "Or, 
if  being  for  a  valid  consideration,  it  be  of  such  a  nature  that  the 
maker  can  by  law  obtain  and  entitle  himself  to  the  same  delay 
without  the  consent  of  the  holder  (as  where  the  holder  has 
been  already  discharged  from  the  note  in  bankruptcy),  then  the 
agreement  will  not  operate  as  a  discharge  of  the  indorsers,  for 
the  reason  that  the  indorsers  cannot,  under  such  circumstances, 
be  injured  by  the  delay,  or  if  injured,  it  is  by  operation  of  law, 
and  not  dependent  upon  the  act  of  the  holder." 

Citing  that  case  also,  Mr.  Daniel,  in  his  work  on  Negotiable 
Instruments,  at  section  1313,  said:  "The  reason  why  extension 
of  time  of  payment  discharges  the  surety  is  that  he  would  be 
entitled  to  the  creditor's  place  by  substitution;  and  if  the  cred- 
itor, by  agreement  with  the  principal  debtor,  without  the  surety's 
assent,  disables  himself  from  suing  when  he  would  be  otherwise 
entitled  to  do  so,  and  thus  deprives  the  surety,  on  paying  the 
debt,  from  immediate  recourse  on  his  principal,  the  contract 
is  varied  to  his  prejudice — hence  he  is  discharged.  But  this 
principle  on  which  sureties  are  released  'is  not  a  mere  shadow 
without  substance.  It  is  founded  upon  a  restriction  of  the 
rights  of  the  sureties  by  which  they  are  supposed  to  be  injured. ' 
Therefore  when  there  is  a  legal  impossibility  of  injury,  the 
principle  does  not  apply.  This  was  decided  to  be  the  case  where 
the  maker  of  a  note  was  a  discharged  bankrupt ;  and  an  agree- 
ment between  him  and  the  holder  for  two  months'  delay,  al- 
though on  a  valid  consideration,  it  was  held  did  not  discharge 
the  indorser,  because  the  latter  could  not,  by  making  payment, 
have  recourse  against  him." 

If  the  rule  releasing  sureties  by  an  extension  of  the  time  of 
payment  rested  upon  the  reason  above  mentioned,  and  upon  none 
other,  it  would  perhaps  be  the  duty  of  the  court  to  hold  here, 
that  the  mortgage  by  Emma  J.  was  not  released  by  the  agreement 
made  and  indorsed  upon  the  back  of  the  note.  But  the  rule, 
we  think,  rests  also  upon  another  reason,  quite  as  important 


258  CHANGE  OF  CONTRACT. 

and  controlling  as  that  already  named,  and  that  is,  that  a  valid 
and  binding  agreement  between  the  creditor  and  the  principal 
debtor,  without  the  consent  or  knowledge  of  the  surety,  for  an 
extension  of  the  time  of  payment,  is  ^modification  or jalteration 
of  the  contract  for  the  performance  of  which  the  surety  obli- 
gated  himself ,  or  bound  his  property. 

That  reason  is  recognized,  if  not  asserted,  in  some  of  our  own 
cases.  The  general  doctrine,  'with  an  exception  which  we  need 
not  here  notice,  as  declared  by  all  of  the  authorities,  is  that 
in  order  to  release  the  surety,  there  must  be  a  new  contract 
between  the  creditor  and  principal  debtor,  fixing  the  time  of 
payment  at  a  different  date  from  that  fixed  in  the  original 
contract;  that  the  contract  for  extension  must  be  based  upon 
a  new  and  sufficient  consideration,  and  that  the  extension  must 
be  to  a  fixed  time,  so  that  the  contract  may  embody  the  necessary 
elements  of  certainty;  in  short,  that  the  contract  for  extension 
must  embody  the  necessary  elements  of  a  valid  and  binding  con- 
tract. See  Wingate  v.  Wilson,  supra;  Chrisman  v.  Perrin,  67 
Ind.  586 ;  Hogshead  v.  "Williams,  55  Ind.  145 ;  Coman  v.  State, 
4  Blackf .  241 ;  Harter  v.  Moore,  5  Blackf .  367. 

In  the  case  of  Pierce  v.  Goldsberry,  31  Ind.  52,  it  was  said, 
in  speaking  of  the  release  of  sureties  by  an  extension  of  the 
time  of  payment:  "It  takes  from  the  surety  a  right  which  he 
had  under  the  contract  into  which  he  entered,  the  exercise  of 
which  may  be  essential  to  his  indemnity. ' '  And  again : ' '  Sureties 
.are  favorites,  and  will  not  be  held  beyond  the  strict  scope  of 
their  engagements." 

In  Daniel  on  Negotiable  Instruments,  at  section  1312,  it  is 
said :  ' '  The  principle  that  whatever  discharges  the  principal  dis- 
charges the  surety  is  of  extended  application,  and  it  is  operative 
whenever  anything  is  done  which  relaxes  the  terms  of  the  exact 
legal  contract  by  which  the  principal  is  bound,  or  in  anywise 
lessens,  impairs,  or  delays  the  remedies  which  the  creditor  may 
resort  to  for  its  assurance  or  enforcement." 

In  Story  on  Promissory  Notes,  at  section  414,  is  this:  "On 
the  other  hand,  the  indorsers,  by  such  an  agreement  for  credit 
or  delay  for  a  prolonged  period  without  their  concurrence, 
would,  if  the  doctrine  were  not  as  above  stated,  be  held  liable 
for  a  period  beyond  their  original  contract,  and  might  suffer 
damage  thereby ;  or  at  all  events,  would  be  bound  by  a  different 
contract  from  that  into  which  they  had  entered." 


POST  v.  LOSEY.  259 

In  stating  the  reason  of  the  rule  releasing  sureties  by  an 
extension  of  the  time  of  payment,  Mr.  Brandt,  in  his  work  on 
Suretyship,  at  section  206,  said :  ' '  The  reason  is,  that  the  surety 
is  bound  only  by  the  terms  of  his  written  contract,  and  if  those 
are  varied  without  his  consent  it  is  no  longer  his  contract,  and 
he  is  not  bound  by  it.  It  therefore  follows  that  the  fact  that 
the  principal  is  insolvent,  or  that  the  extension  would  be  a 
benefit  to  the  surety  if  he  remained  bound,  makes  no  difference 
in  the  rule.  Moreover  the  surety  has  a  right  when  the  debt  is 
due,  according  to  the  original  contract,  to  pay  it,  and  immediately 
proceed  against  the  principal  for  indemnity,  and  he  is  deprived 
of  this  right  by  such  an  extension  of  the  tune  of  payment." 

In  the  case  of  Ide  v.  Churchill,  14  Ohio  St.  372  (383-4),  Judge 
RANNEY  said : ' '  Every  contract  is  composed  of  the  material  terms 
and  stipulations  embraced  in  it,  and  among  these  none  is  more 
important  than  the  tune  of  performance.  It  follows,  from  the 
principles  already  stated,  that  whatever  changes  any  of  these 
material  terms  and  stipulations,  so  as  to  destroy  the  identity  of 
the  obligation  to  which  the  surety  acceded,  necessarily  discharges 
him  from  liability.  An  engagement  to  pay  money  in  six  months, 
is  not  the  same  as  one  to  pay  it  in  twelve  months;  and  if  the 
creditor,  by  a  valid  agreement  with  the  debtor,  extends  the  time 
of  performance  from  the  shorter  to  the  longer  period,  he  super- 
sedes the  old  obligation  by  the  new,  and  cannot  enforce  payment 
until  the  longer  period  has  elapsed.  If  the  surety  is  sued  upon 
the  old  agreement,  to  which  alone  his  undertaking  was  accessory, 
he  has  only  to  show  that  that  has  ceased  to  exist,  and  no  longer 
binds  his  principal,  and  if  he  is  sued  upon  the  substituted  agree- 
ment, he  is  entitled,  both  at  law  and  in  equity,  to  make  the  short 
and  conclusive  answer,  non  hoec  in  foedera  veni.  But  such  an 
agreement  between  the  principal  parties  is  perfectly  valid  and 
legal,  and  until  some  method  can  be  devised  for  depriving  the 
principal  of  the  benefits  of  a  valid  agreement,  or  of  binding  the 
surety  to  an  agreement  to  which  he  never  acceded  (a  work  hith- 
erto thought  not  to  be  within  the  powers  of  either  courts  or 
legislatures),  the  discharge  of  the  latter  must  ensue.  I  am  very 
well  aware,  that  this  discharge  has  been  often  thought  to  rest 
upon  the  injurious  consequences  of  such  arrangements,  either 
real  or  possible,  upon  the  rights  and  interests  of  the  surety,  and 
undoubtedly  in  most  cases,  such  would  be  their  necessary  ten- 
dency. But  if  it  rested  upon  this  ground  alone,  it  would  be  very 


260  CHANGE  OF  CONTRACT. 

difficult  upon  equitable  principles  to  extend  the  relief  beyond 
the  actual  injury;  while  it  is  universally  agreed  that  they  work 
a  total  discharge,  and  extend  to  cases  where  no  possible  injury 
to  the  surety  could  have  ensued." 

In  line  with  the  above  case,  see  Valley  National  Bank  v. 
Meyers,  17  N.  B.  R.  257 ;  Huffman  v.  Hulbert,  13  Wend.  375 ; 
Schnewind  v.  Hacket,  54  Ind.  248. 

In  the  case  of  Haden  v.  Brown,  18  Ala.  641,  it  was  held,  as 
in  the  Ohio  case,  supra,  that  the  surety  was  discharged  by  an 
extension  of  the  time  of  payment,  because  such  an  extension  was 
a  change  and  alteration  of  the  contract. 

A  surety  is  bound  only  by  the  strict  terms  of  his  engagement. 

He  assumes  the  burdens  of  a  contract  without  sharing  its 
benefits.  He  has  a  right  to  prescribe  the  exact  terms  upon  which 
he  will  enter  into  an  obligation,  and  insist  upon  his  discharge 
if  those  terms  are  not  observed.  It  is  not  a  question  whether 
he  is  harmed  fey  a  deviation  to  which  he  has  not  assented.  He 
may  plant  himself  upon  the  technical  objection,  non  hoec  in 
foedera  veni — this  is  not  my  contract.  Markland  Mining  and 
Mnfg.  Co.  v.  Kimmel,  87  Ind.  560 ;  Weed  Sewing  Machine  Co. 
v.  Winchel,  107  Ind.  260;  City  of  Lafayette  v.  James,  92  Ind. 
240;  s.  c.,  47  Am.  Rep.  140. 

In  the  case  before  us,  Emma  J.  mortgaged  her  separate  prop- 
erty as  security  for  the  performance  of  the  contract  between 
her  husband,  the  debtor,  and  appellant 's  decedent,  the  payee,  as 
that  contract  was  evidenced  by  the  note.  That  contract,  as  thus 
evidenced,  measured  and  fixed  the  manner  and  extent  to  which 
her  property  was  to  become  liable.  Irwin  v.  Kilburn,  104  Ind. 
113 ;  Weed  Sewing  Machine  Co.  v.  Winchel,  supra. 

If  then  there  has  been  a  modification  or  alteration  of  that 
contract,  the  mortgage  cannot  be  foreclosed.  If  there  has  been 
such  a  change  or  modification,  the  property  of  Emma  J.  cannot 
be  made  liable  as  security  for  the  original  contract,  because  it 
no  longer  exists  as  originally  made,  nor  as  security  for  the  con- 
tract as  changed,  because  that  would  be  to  make  the  surety  liable 
beyond  the  scope  of  the  contract.  The  note  is  not  the  contract, 
but  the  evidence  of  it.  In  some  of  the  cases  above  cited,  it  was 
expressly  held  that  an  agreement  between  the  creditor  and  prin- 
cipal debtor  for  an  extension  of  the  time  of  payment,  not  in- 
dorsed upon  the  note  or  written  instrument,  so  far  as  appears, 


POST  v.  LOSEY.  -  261 

^s  * 

operated  as  a  modification  and  change  of  the  contract  as  evi- 
denced by  the  note-  or  written  instrument. 

Here  Losey,  (the  principal  debtor^'  and  the  payee,  not  only 
agreed  that  the  time  oFpayment  should  be  extended  beyond  the 
time  as  originally  agreed  upon  and  named  in  the  note,  but  also 
agreed  upon  and  named  a  rate  of  interest  for  the  future  different 
from  that  originally  agreed  upon  and  named  in  the  note.  Not 
only  that,  but  they  indorsed  the  agreement  upon  the  note.  The 
agreement  thus  indorsed  upon  the  note  operated  as  a  modifica- 
tion and  change  of  the  original  agreement.  In  other  words, 
after  the  consummation  of  the  latter  agreement,  indorsed  upon 
the  back  of  the  note,  Losey  and  the  payee  were  no  longer  bound 
by  the  agreement  as  written  upon  the  face  of  the  note,  but  by  that 
agreement  as  modified  and  changed  by  the  subsequent  agreement 
indorsed  upon  the  back  of  the  note.  After  that  indorsement, 
their  agreement  was  to  be  ascertained  by  an  examination  of  the 
face  of  the  note  and  indorsement.  The  two  writings  are  to  be 
construed  together.  Together  they  constitute  the  contract  be- 
tween Losey  and  the  payee.  To  hold  otherwise,  would  be  to 
hold  that  the  latter  agreement  was  and  is  of  no  validity  whatever. 
The  latter  agreement,  by  its  terms,  is  to  pay  the  note  as  written, 
with  a  change  in  time  and  rate  of  interest.  That  there  was  a 
sufficient  consideration  for  that  agreement  there  can  be  no  doubt. 
In  consideration  of  the  change  of  time  and  rate  of  interest,  Losey 
exchanged  a  moral  obligation  only  for  a  legal  liability. 

In  our  conclusion  that  the  contract  between  Losey  and  the 
payee  is  evidenced  by  the  face  of  the  note  and  the  indorsement 
upon  the  back  of  it,  we  are  fully  supported  by  the  cases  of 
Beckner  v.  Carey,  44  Ind.  89,  and  Harden  v.  Wolfe,  2  Ind.  31. 
It  is  not  easy,  if  it  is  possible,  to  reconcile  with  those  cases  the 
cases  of  Huff  v.  Cole,  45  Ind.  300,  and  Bucklen  v.  Huff,  53  Ind. 
474,  from  the  opinion  in  each  of  which  cases,  it  may  be  remarked, 
there  was  a  dissent  by  one  of  the  judges.  There  are  some  dif- 
ferences between  the  indorsement  upon  the  back  of  the  note  in 
the  case  before  us  and  the  indorsement  upon  the  back  of  the 
notes  in  those  cases.  The  cases  may  therefore  be  distinguishable. 
But  if  there  were  no  differences,  we  should  disapprove  those 
cases  and  follow  the  cases  of  Beckner  v.  Carey,  and  Harden  v. 
Wolfe,  swpra.  The  contract  between  Losey  and  the  payee,  as 
evidenced  by  the  face  of  the  note  and  the  indorsement  upon  the 
back  of  it,  is  not  the  contract  between  them  as  it  existed  at  the 


262  CHANGE  OF  CONTRACT. 

time  Emma  J.  executed  the  mortgage,  and  to  secure  the  per- 
formance of  which  on  the  "part  of  Losey  she  mortgaged  her  sep- 
arate property.  Losey  and  the  payee  changed  that  contract  with- 
out her  consent  or  knowledge  by  agreeing  upon  a  different  rate 
of  interest  and  a  different  time  for  payment. 

The  contract  to  secure  which  she  mortgaged  her  property  can 
be  inforced  by  no  one,  and  for  the  contract  as  changed  neither 
she  nor  her  property  is  liable.  To  hold  her  property  liable  upon 
the  original  contract  as  evidenced  by  the  note,  would  be  to  hold 
it  liable  for  the  default  in  payment  by  Losey,  three  years  before 
he  could  be  in  default  under  the  contract  as  changed;  and  to 
hold  her  property  liable  upon  the  changed  contract,  would  be  to 
hold  it  liable  for  a  contract  different  in  time  of  payment  and  rate 
of  interest  from  that  which  entered  into  and  formed  a  part  of 
the  contract  as  evidenced  by  the  mortgage.  To  hold  her  property 
liable  upon  the  original  contract  would  be  to  measure  the  liability 
of  the  principal  by  one  standard,  and  the  liability  of  the  surety 
by  another  and  different  standard.  But  it  is  said,  that  because 
Losey  had  been  discharged  in  bankruptcy  from  all  his  debts,  he 
became  a  stranger  to  the  note,  and  that  therefore  the  change  in 
the  contract  agreed  to  by  him  cannot  affect  Emma  J.  or  the 
mortgage  given  by  her. 

In  answer  to  that  it  is  sufficient  to  say,  in  the  first  place,  that 
by  his  discharge  Losey  did  not  become,  in  every  sense,  a  stranger 
to  the  note.  The  discharge  released  him  from  all  legal  liability 
upon  it,  and  in  that  sense  extinguished  the  debt ;  but  it  did  not 
pay  the  debt,  nor  release  him  from  the  moral  duty  of  paying  it. 
The  moral  obligation  was  a  sufficient  consideration  for  his  subse- 
quenTpromise  to  pay  it.  Hockett  v.  Jones,  70  Ind.  227 ;  Shoekey 
v.  Mills,  71  Ind.  288 ;  s.  c.,  36  Am.  Rep.  196 ;  Meech  v.  Lamon, 
103  Ind.  515;  s.  c.,  53  Am.  Rep.  540;  Wills  v.  Ross,  77  Ind.  1; 
s.  c.,  40  Am.  Rep.  279 ;  Jenks  v.  Opp,  43  Ind.  108. 

In  the  second  place,  the  bankruptcy  of  Losey  did  not  destroy, 
change  or  affect  the  contract  of  the  surety.  Emma  J.  mortgaged 
her  property  to  secure  the  performance  of  the  contract  between 
Losey  and  the  payee  as  it  existed  at  the  time  the  mortgage  was 
executed.  The  discharge  of  Losey  from  legal  liability  upon  that 
contract  did  not,  and  could  not,  affect  her  rights.  His  discharge 
from  legal  liability  upon  the  contract  did  not  destroy  or  alter  it. 
To  hold  that  it  did,  would  be  to  hold  that  it  absolutely  released 
the  mortgage.  The  contract  between  Losey  and  the  payee,  so 


WEIL  v.  THOMAS.  263 

far  at  least  as  the  surety  was  concerned,  remained  the  same  after 
as  before  the  discharge  of  Losey. 

The  only  difference  was,  that  by  reason  of  his  discharge,  he 
was  no  longer  legally  liable  upon  the  contract.  He  might  how- 
ever waive  the  immunity  afforded  by  his  discharge,  and  pay  the 
debt  according  to  the  terms  of  the  note.  To  secure  the  perform- 
ance of  the  contract  according  to  the  terms  of  the  note,  and  in 
no  other  way,  the  separate  property  of  Emma  J.  was  mortgaged. 
In  order  that  Losey  might  again  become  liable  for  the  payment 
of  the  principal  sum,  the  payee  consented  that  the  contract  might 
be  changed  as  to  the  time  of  payment  and  the  rate  of  interest. 
The  contract,  as  evidenced  by  the  face  of  the  note  and  the  in- 
dorsement upon  the  back  of  it,  thus  became  the  contract  between 
Losey  and  the  payee.  By  the  change,  the  contract  as  originally 
executed  ceased  to  exist,  both  as  a  legal  and  moral  obligation  on 
the  part  of  Losey.  And  this  is  so,  whether  the  new  promise  be 
regarded  as  a  revival  of  the  original  contract,  so  far  as  consistent 
with  it,  or  whether  it  be  regarded  as  an  entirely  new  contract. 

This  suit  is  really  upon  the  changed  contract,  because  copies 
of  the  face  of  the  note  and  the  indorsement  upon  the  back  of  it 
are  both  filed  with  the  complaint  as  the  cause  of  action. 

In  any  view  that  may  properly  be  taken  of  the  case,  it  must 
be  held  that  the  property  of  Emma  J.  is  no  longer  liable.  As 
the  court  below  so  ruled,  the  judgment  is  affirmed,  with  costs. 


WEIL  v.  THOMAS.     1894. 
114  N.  C.  197;  19  8.  E.  Rep.  103. 

Appeal  from  superior  court,  Wayne  county;  H.  G.  Connor, 
Judge. 

Action  by  H.  Weil  &  Bros,  against  J.  H.  Thomas  and  wife  and 
others  to  foreclose  a  mortgage.  Plaintiffs  except  to  the  terms  of 
the  decree,  and  appeal.  Affirmed. 

BUBWELL,  J.  We  find  no  error  in  the  judgment  to  which  the 
plaintiffs  except.  It  conforms  to  the  principle  announced  in 
Shinn  v.  Smith,  79  N.  C.  310 ;  Davis  v.  Lassiter,  112  N.  C.  128, 
16  S.  E.  899;  and  Hinton  v.  Greenleaf,  113  N.  C.  6,  18  S.  E.  56, 
and  cases  there  cited.  According  to  these  authorities,  a  married 


264  CHANGE  OP  CONTRACT. 

woman  who  has  mortgaged  her  land  to  secure  the  payment  of  a 
debt  of  her  husband  has  the  rights  of  a  surety  as  to  the  liability 
she  has  thus  imposed  on  her  property,  and  can  require  that  all 
of  her  husband 's  estate  that  is  mortgaged  to  secure  the  debt  shall 
be  exhausted  before  her  land  is  sold;  and  she  has  a  right  to 
object  to  the  diversion  of  funds  that  should  have  been  applied 
on  the  debt  to  her  exoneration,  if  such  diversion  was  made  with- 
out her  consent.  She  being  dead,  her  heirs  are  entitled  to  like 
protection.  It  is  proper  and  just  that  all  the  husband's  interest 
in  the  land  covered  by  the  mortgage  should  be  exhausted  before 
the  estate  of  her  heirs  therein  shall  be  taken  and  sold. 

Affirmed. 


i- 

g.   Mere  delay  on  the  part  of  the  creditor  in  enforcing  the  obliga- 
tion against  the  principal  will  not  discharge  the  surety. 

ALLE&  v.  HOPKINS. '   1896. 
98  Ey.  668;  34  fffw.  Rep.  13;  56  Am.  St.  Eep.  382. 

'Appeal  from  circuit  court,  Boyd  county. 

"To  be  officially  reported." 

Action  by  John  Alley  against  John  C.  Hopkins  and  others. 
Judgment  for  defendants,  and  plaintiff  appeals.  Reversed. 

HAZELBIGG,  J.  Several  years  prior  to  1886  John  Alley  loaned 
to  the  firm  of  Hogan  &  Son  $1,000,  and  upon  the  back  of  the 
firm's  note  for  that  sum  the  names  of  Hopkins  and  the  other  ap- 
pellees appeared  as  accommodation  indorsers.  On  June  llth  of 
the  year  named,  the  form  of  the  paper  was  changed,  and  under 
the  firm 's  name  the  appellees  wrote  their  names  as  sureties.  This 
note  was  due  in  12  months,  and  contained  no  provisions  as  to 
interest.  On  it  were  the  indorsements,  "Interest  paid  up  to  June 
11,  1888,"  and  "Interest  paid  up  to  June  11,  1889."  In  No- 
vember, 1889,  suit  was  brought  against  the  principals,  and  judg- 
ment obtained;  but  it  appears  they  had  become  insolvent,  and 
in  October,  1890,  this  action  was  instituted  against  the  sureties. 
They  pleaded  that,  for  a  valuable  consideration,  the  payee  had 
extended  indulgence  to  the  principals  for  a  definite  period,  and 
forborne  to  sue  on  the  original  contract,  and  whether  or  not  this 
is  true  is  the  only  question  presented  on  this  appeal.  The  con- 


ALLEWv.  HOPKINS.  265 

tention  of  the  sureties  is  that  the  testimony  shows  that,  upon  the 
maturity  of  the  note,  on  June  11,  1887,  Hogan  &  Son  paid  Alley 
$100,  a  like  sum  on  June  11,  1888,  and  a  like  sum  on  June  11, 
1889 ;  that  upon  the  payment  of  each  of  these  sums,  Alley  agreed 
that  the  firm  should  keep  the  money  for  another  year,  the  con- 
sideration for  theeextension  of  credit  being  the  payment  of  usuri- 
ous interest,  or  $40  each  year  in  excess  of  legal  interest;  that 
this  was  a  novation,  and  effected  their  discharge,  or,  at  any  rate, 
here  was  an  agreement,  in  consideration  of  interest  to  be  paid, 
by  which  a  definite  time  was  fixed  within  .which  the  payee  had 
lost  his  right  to  resort  to  his  legal  remedy.  It  is  conceded  that 
no  interest  was  paid  in  advance.  The  principal  agreed,  when  he 
borrowed  the  money,  to  pay  10  per  centum  interest  per  annum, 
and  at  the  maturity  of  the  note,  in  June,  1889,  he  paid  the  exact 
sum  he  agreed  to  pay,  and  no  more.  So  far,  therefore,  the  surety 
is  not  affected.  If,  however,  in  addition  to  complying  with  its 
provision  to  pay  this  interest,  the  firm  secured  a  valid  and  en- 
forceable contract  to  keep  the  money  another  year, — a  contract 
which  would  prevent  Alley  from  suing  for  his  money,  or  the 
firm  from  paying  it  if  it  so  desired, — then  the  original  attitude 
of  the  parties  has  been  changed,  and  the  sureties  are  released. 
The  proof  on  the  particular  point  involved  is  within  a  small 
compass,  though  not  altogether  free  from  confusion.  Alley  is 
positive  that  the  only  agreement  ever  made  was  that  the  Hogans 
were  to  pay  him  10  per  cent.,  and  that  this  was  paid  for  three 
successive  years,  each  year  as  interest  for  the  preceding  year, 
and  that  he  made  no  arrangement  or  agreement  for  any  succeed- 
ing year,  except  to  say  that,  if  he  did  not  need  the  money,  the 
firm  might  keep  it  by  paying  the  10  per  cent,  interest.  Hogan, 
Sr.,  upon  whose  testimony  the  sureties  rely,  proves  that  he  agreed 
to  pay,  and  did  pay,  10  per  cent,  at  the  end  of  each  year  as  in- 
terest for  the  preceding  year,  and  it  was  then  agreed  that  the 
firm  might  keep  the  money  for  another  year  at  the  same  interest. 
On  cross-examination,  he  states  that  there  was  no  consideration 
given  by  him,  directly  or  indirectly,  that  Alley  should  not  collect 
his  money  whenever  he  pleased.  The  testimony  of  Hogan,  Jr., 
the  only  other  witness,  is  too  indefinite  to  be  of  any  value.  It  is 
manifest  that  the  payment  of  the  $100  did  not  to  any  extent 
form  the  basis  of  the  agreement  to  let  the  Hogans  keep  the  money 
for  a  succeeding  year.  The  agreement  to  extend  the  credit  for 
a  year  was  solely  because  of  the  promise  of  the  Hogans  to  again 


266  CHANGE  OF  CONTRACT. 

pay  a  like  sum  at  the  end  of  the  extended  period.  They  paid 
this  interest  solely  because  ,they  agreed  to  do  it.  It  was  their 
contract.  So  far,  therefore,  as  the  various  payments  of  interest 
are  concerned,  the  rights  of  the  sureties  are  not  affected;  and 
the  simple  question  remains,  was  there  an  agreement  to  extend 
the  tune  of  payment  for  a  definite  tune  in  the  future  in  considera- 
tion of  a  promise  to  pay  interest  at  the  rate  stated  ?  It  is  clear 
however,  that  the  rate  agreed  on  is  immaterial.  So  far  as  it  was 
beyond  the  legal  rate,  it  was  usurious,  and  the  contract  was  not 
enforceable  save  to  the  extent  of  the  legal  rate.  But  while  the 
note,  after  the  first  year,  bore  6  per  cent.,  and  an  agreement  that 
that  rate  should  be  paid  was  no  more  than  the  law  said  should 
be  paid,  ye^the  promise  to  extend  the  tune  definitely  in  con- 
sideration of  an  agreement  to  pay  the  legal  rate  would  be  based 
on  a  valuable  consideration,  because,  as  said  in  McComb  v.  Kitt- 
ridge,  14  Ohio  351,  cited  and  approved  in  Robinson  v.  Miller,  2 
Bush.  188,  ' '  the  law  does  not  secure  the  payment  of  this  interest 
for  any  given  period,  or  prevent  the  discharge  of  the  principal 
at  any  moment.  There  is  precisely  the  same  consideration  for 
the  extension  of  time  as  there  was  for  the  original  loan."  A 
careful  examination  of  Hogan's  testimony  convinces  us  that  the 
arrangement  he  had  was  a  general  one,  commencing  in  1883,  when 
he  first  borrowed  the  money,  that /he  was  to  pay  10  jger  cent, 
interest  at  the  end  of  each  year,  and  was  to  keep  the  principal 
sum  at  that  rate  so  long  as  he  wanted  it  or  the  payee  did  not 
choose  to  demand  it.)  While  the  witness,  in  his  examination  in 
chief,  speaks  with  some  positiveness  of  his  agreement  to  keep  the 
money  another  year,  on  his  cross-examination  he  qualifies  his 
statements  by  saying,  in  one  instance,  "the  only  agreement  we 
had,  I  was  to  pay  him  10  per  cent,  for  his  money. ' '  And  from 
his  language,  quoted  heretofore,  it  is  manifest  that  there  was  no 
agreement  by  which  the  payee  might  not  collect  his  money  "when- 
ever he  pleased  to  do  so." 

From  the  testimony  as  a  whole,  we  are  impressed  with  the 
belief  that  great  surprise  would  have  been  expressed  by  all  the 
parties  if,  upon  the  tender  of  the  money  by  the  Hogans,  Alley 
had  refused  to  accept  it  by  reason  of  an  agreement  that  the 
payers  were  to  keep  it  for  any  definite  period  in  the  future,  or 
if  Alley  had  demanded  the  principal  and  the  Hogans  had  as- 
serted the  right  to  keep  it  for  any  specified  time.  The  alleged 
arrangement  or  agreement  is  entirely  too  indefinite  to  support 


SECOND  NAT.  BANK  v.  HILL.  267 

the  belief  that  we  have  here  a  case  of  a  legal  novation.  We 
cannot  believe  that  the  proof  authorizes  the  conclusion  that,  by 
any  new  contract,  the  sureties  were  denied  any  of  their  rights, 
or  were  at  all  obstructed  in  any  of  their  remedies,  legal  or  equita- 
ble. They  could  have  paid  the  debt  at  any  moment,  and  have 
been  subrogated  to  the  rights  of  the  creditor,  or  they  could  have 
required  the  creditor  to  sue  notwithstanding  the  indefinite  ar- 
rangement existing  between  the  principal  and  his  debtor.  In 
reaching  these  conclusions,  we  have  not  overlooked  the  circum- 
stances surrounding  the  parties  to  be  affected.  Alley  was  an 
old  man, — over  73, — and  apparently  unlettered.  He  was  simply 
willing  to  let  the  earnings  of  his  farm  and  log  business  stay  out 
at  10  per  cent,  as  long  as  his  security  was  good.  To  construe 
his  passive  indulgence  into  an  agreement  binding  him  not  to 
collect  his  money  would  be  a  perversion  of  the  proof  as  affected 
by  the  surroundings.  The  debtors  were  quite  willing  to  keep 
the  money  as  long  as  they  were  not  required  to  pay  it,  but  never 
thought  to  defeat  recovery  at  any  time  by  the  plea  of  an  agree- 
ment to  extend  the  credit  for  any  definite  time.  At  least,  they 
did  not  do  so  when  sued  in  November,  1889,  as  they  might  have 
done  had  such  an  agreement  existed.  The  sureties  were  residents 
of  the  same  town,  and  it  is  fair  to  presume,  knew  the  debt  had 
not  been  paid.  Their  remedies  were,  i$  fact,  unobstructed ;  and 
if  they  did  not  choose  to  urge  the  collection  of  the  debt,  they 
and  not  Alley  must  bear  the  resulting  loss.  Judgment  reversed, 
for  proceedings  consistent  with  this  opinion. 


SECOND  NATIONAL  BANK  OF  LAFAYETTE  v.  HILL. 

1881. 

76  Ind.  223;  40  Am.  Rep.  239. 

Action  on  a  promissory  note.  The  opinion  states  the  case. 
The  defendant  had  judgment  below. 

MORRIS,  C.  This  suit  is  upon  a  promissory  note,  dated  April 
12,  1877,  executed  by  Samuel  Hill,  John  Hair  and  William 
Mote  for  $300,  payable  four  months  after  date,  to  the  order  of 
the  appellant,  at  its  bank  in  Lafayette,  with  five  per  cent  attorney 
fees  and  with  interest  at  the  rate  of  ten  per  cent  per  annum  after 


268  CHANGE  OF  CONTRACT. 

maturity,  without  relief  from  valuation  or  appraisement  laws. 
The  suit  was  commenced  in  the  Tippecanoe  Circuit  Court,  and 
taken  by  change  of  venue  to  the  Carroll  Circuit  Court. 

The  defendant  Hill  answered  the  complaint  in  three  para- 
graphs, though  the  record  says  that  the  answer  contained  four 
paragraphs,  there  are  but  three  in  the  record.  It  is  not  material 
how  this  may  be,  as  the  answer  was  the  separate  answer  of  Hill. 
Judgment  was  rendered  against  him  and  in  favor  of  the  ap- 
pellant, and  he  does  not  complain.  We  need  not  further  notice 
the  proceedings  as  to  Hill. 

Hair  and  Mote  filed  a  joint  answer  in  four  paragraphs.  The 
appellant  demurred  to  the  fourth  paragraph  of  their  answer. 
The  demurrer  was  overruled.  It  then  replied  to  the  first,  second, 
third  and  fourth  by  a  general  denial.  There  was  a  special  reply 
to  the  fourth  paragraph  of  the  answer  of  Mote  and  Hair.  The 
cause  was  submitted  to  a  jury.  Verdict  for  the  appellant  against 
Hill,  and  against  it  and  in  favor  of  Mote  and  Hair.  Motion 
by  the  appellant  for  a  new  trial,  which  was  overruled.  Judgment 
upon  the  verdict.  The  evidence  is  made  part  of  the  record  by 
bill  of  exceptions. 

The  rulings  of  the  court  upon  the  demurrer  to  the  fourth 
paragraph  of  the  answer  of  Mote  and  Hair,  and  on  the  appel- 
lant's motion  for  a  new  trial,  are  assigned  as  error. 

The  fourth  paragraph  of  the  answer  of  Mote  and  Hair  admits 
the  execution  of  the  note  in  suit,  and  then  states  that  the  de- 
fendant Hill  signed  the  note  as  principal,  and  that  they,  Mote 
and  Hair,  signed  it  as  the  sureties  of  Hill ;  that  the  bank  knew 
at  the  time  that  Hill  was  principal,  and  they  his  sureties;  that 
the  note  was  given  for  money  borrowed  by  said  Hill  of  the  ap- 
pellant; that  the  appellant  is  a  banking  corporation,  organized 
under  the  National  Banking  Law;  that  after  the  maturity  of 
the  note,  said  Hill  made  general  deposits  in  the  appellant 's  bank, 
from  time  to  time,  to  the  amount  of  $8,000,  and  in  sums  exceeding 
the  amount  due  on  said  note ;  that  said  Hill,  prior  to  the  maturity 
of  the  note,  "had  consented  and  directed  the  appellant  to  allow 
and  pay  said  note,  interest,  etc.,  thereon  at  any  time  after  its 
maturity,  out  of  his  deposits  in  said  bank,  if  he  should  have  any 
such  funds  in  said  bank  to  pay  the  same  or  any  part  thereof;" 
that  after  said  note  became  due,  the  appellant  had  of  the  funds 
of  said  Hill  on  deposit  in  its  bank,  more  than  enough  to  pay  said 
note,  interest,  etc. ;  that  it  failed  and  neglected  to  apply  any  of 


SECOND  NAT.  BANK  v.  HILL.  269 

the  funds  of  said  Hill  so  on  deposit  in  its  bank  as  aforesaid 
(except  $53),  in  payment  of  said  note,  but  long  subsequent  to 
the  maturity  of  said  note,  suffered  said  Hill  to  check  said  funds 
out  of  said  bank.  Wherefore  they  say  they  are  discharged. 

The  question  raised  by  the  demurrer  to  this  paragraph  of  the 
answer  is :  Did  the  appellant,  by  failing  to  apply  to  its  payment 
the  money  which  Hill  had  on  general  deposit  in  its  bank,  at 
and  after  the  maturity  of  the  note,  discharge  Mote  and  Hair,  the 
known  sureties  of  Hill  on  the  note  ?  That  the  bank  had  a  right 
so  to  apply  the  money  which  Hill  had  on  general  deposit  after 
the  maturity  of  the  note,  with  or  without  the  consent  or  direction 
of  Hill,  will  not  be  seriously  questioned.  In  speaking  of  general 
deposits,  Morse  says:  "So  soon  as  the  money  has  been  handed 
over  to  the  bank,  and  the  credit  given  to  the  payer,  it  Is  at  once 
the  proper  money  of  the  bank.  It  enters  into  the  general  fund 
and  capital,  and  is  indistinguishable  therefrom.  Thereafter  the 
depositor  has  only  a  debt  owing  him  from  the  bank;  a  chose  in 
action,  not  any  specific  money,  or  a  right  to  any  specific  money." 
Against  the  debt  thus  due  the  depositor,  the  bank  may  set  off 
any  debt  due  from  the  depositor  to  it.  Morse  on  Banking,  pp. 
30  and  42;  Commercial  Bank,  etc.,  v.  Hughes,  17  Wend.  94; 
Beckwith  v.  Union  Bank,  etc.,  4  Sandf.  604. 

Though  the  funds  deposited  with  the  appellant  might  have 
been  applied  by  it  to  the  payment  of  the  note  in  suit,  the  bank 
did  not  hold  the  funds,  in  any  sense,  in  trust  for  the  sureties 
of  Hill  on  the  note.  Had  Mote  and  Hair,  as  such  sureties,  paid 
to  the  appellant  the  note  in  suit,  they  could  not,  had  the  bank 
at  the  time  been  indebted  to  Hill  on  his  deposit  account  in  a  sum 
exceeding  the  amount  paid  on  the  note,  have  required  the  bank 
to  apply  such  indebtedness  for  their  benefit,  or  to  reimburse 
them  for  the  money  paid  by  them  on  the  note  for  Hill's  benefit. 
They  could  not  have  required  this  of  the  bank  for  the  obvious 
reason  that  they  could  not  have,  under  the  circumstances,  any 
right  to  or  interest  in  the  debt  due  from  the  bank  to  Hill. 

In  the  case  of  Voss  v.  German  American  Bank,  83  111.  599; 
e.  c.,  25  Am.  Rep.  415,  the  note  sued  on  was  as  follows :  "Chicago, 
Oct.  4,  1873.  Fifteen  days  after  date  we  promise  to  pay  to  the 
order  of  the  Germania  Bank  of  Chicago  three  hundred  dollars, 
at  their  office,  with  interest  at  the  rate  of  ten  per  cent  per  annum 
after  due,  until  paid.  Value  received.  Signed.  Albert  Michel- 
son.  Indorsed :  A  Voss. "  "  The  note, ' '  says  the  court, ' '  appears 


270  CHANGE  OF  CONTRACT. 

to  have  been  made  for  Michelson's  benefit,  and  Voss  to  have  been 
only  a  surety,  as  between  himself  and  Michelson,  and  as  Michel- 
son  is  shown  to  have  had  funds  on  deposit  in  the  bank,  from 
time  to  time,  after  the  maturity  of  the  note,  and  before  the 
bringing  of  the  suit,  to  an  amount  exceeding  that  of  the  note, 
it  is  insisted  that  the  bank  was  bound  to  apply  such  funds  to 
the  payment  of  the  note,  and  that  not  having  done  so,  Voss  was 
discharged.  And  the  case  of  McDowell  v.  Bank  of  Wilmington 
and  Brandywine,  1  Harring.  369,  and  Law  v.  East  India  Co., 
4  Ves.  824,  are  cited  as  authorities,  that  under  such  circumstances, 
a  surety  will  be  discharged.  Without  remark  upon  or  considera- 
tion of  these  authorities,  we  do  not  regard  them  as  having  appli- 
cation to  the  case  in  hand.  We  do  not  recognize,  in  such  a  case 
as  is  here  presented,  the  existence  of  any  such  obligation  as  the 
one  which  is  asserted  by  appellant's  counsel." 

The  case  of  McDowell  v.  Bank  of  Wilmington,  etc.,  supra,, 
seems  to  be  the  other  way.  The  bank  had  means  in  its  hands 
which  might  have  applied  to  the  payment  of  the  note.  The 
court  says:  "Upon  what  principle  of  justice  can  such  a  creditor 
in  a  court  of  equity  claim  to  hold  the  surety  bound,  after  the 
debt  had  been  in  point  of  fact  paid,  if  the  creditor  had  elected 
to  say  so  or  to  so  consider  it.  The  creditor  could  have  set  off 
the  debt  and  charged  it  in  the  account,  and  having  the  power, 
was  it  not  his  duty  to  do  so  in  justice  to  the  surety  ? ' ' 

The  question  is  not  what  the  creditor  might  or  could  have 
done,  but  was  he  obliged  to  do  this  or  discharge  the  surety  1  The 
creditor  might  sue  the  principal  debtor  as  soon  as  the  debt  ma- 
tured, and  thereby  save  the  surety  from  future  hazard,  but  he 
is  not  obliged  to  sue.  He  may  delay  the  collection  of  his  debt 
even  until  the  principal  debtor  fails,  without  discharging  the 
surety.  To  hold  that  the  bank  was  obliged  to  apply  the  deposits 
,made  by  Hill  to  the  payment  of  the  note,  would  be  to  compel 
him  to  collect  his  debt,  though  none  of  the  parties  bound  to  pay 
it  had  requested  him  to  do  so. 

The  case  of  Martin  v.  Mechanics'  Bank,  etc.,  6  Har.  &  J.  235, 
is  in  point.  The  action  was  upon  a  bill  of  exchange  for  $645, 
drawn  by  W.  P.  Strike  on  W.  &  A.  H.  Woods,  payable  to  Martin, 
and  was  indorsed  by  him  and  others  to  the  bank.  The  bill  was 
dated  August  24,  1819,  and  due  at  nine  months.  On  the  20th 
of  June,  1820,  and  after  the  bill  matured,  W.  &  A.  H.  Woods 
had  on  general  deposit  in  the  bank  $700,  sufficient  to  pay  the 


SECOND  NAT.  BANK  v.  HILL.  271 

bill.  The  sum  thus  on  deposit  was  not  applied  by  the  bank  in 
payment  of  the  bill,  but  soon  thereafter  paid  out  on  the  checks 
of  the  depositors.  Martin,  the  indorser  of  the  bill,  contended 
that  the  $700  on  deposit  June  20,  1820,  should  be  held  to  be  a 
payment  of  the  bill;  or  if  not,  the  transaction  amounted,  in 
law,  to  a  waiver  of  the  right  of  the  bank  to  proceed  against  him 
as  indorser;  that  he  was  exonerated  from  all  liability.  The 
court  held  that  the  deposit  was  not  a  payment  of  the  bill,  and 
that  the  failure  of  the  bank  to  apply  the  deposit  to  the  payment 
of  the  bill  did  not  release  the  indorser.  The  court  also  held  that 
the  deposits  made  from  time  to  tune,  after  the  maturity  of  the 
bill,  and  the  paying  out  of  the  same  upon  the  checks  of  the 
depositors,  did  not  indicate  a  purpose,  on  their  part,  to  apply 
the  money  in  payment  of  the  bill,  but  rather  the  contrary ;  that 
under  such  circumstances,  the  law  will  not  require  the  banker 
to  disappoint  its  customers  by  such  an  application  of  his  de- 
posits. 

True,  it  is  averred  in  the  answer,  that  Hill  said  to  the  appel- 
lant, some  time  before  the  maturity  of  the  note,  that  wnen  it 
TnaTured,  any  sum  that  he  might  then  have  on  deposit  might_ 
j>e  applied  to  its  payment.  But  this  is  just  what  he  said,  by 
implication  of  law",  whenever  he  made  a  general  deposit  in  the 
bank.  The  act  of  making  such  a  deposit  was  authority  to  the 
bank  to  apply  the  deposit  to  the  payment  of  the  note  in  suit. 
The  statement  of  Hill  gave  the  bank  no  additional  authority. 
The  checks  subsequently  drawn  by  Hill  upon  the  bank  were  a 
withdrawal  of  his  previous  directions  upon  the  subject.  It  was 
competent  for  Hill  and  the  bank  to  make  any  disposition  of  the 
deposits,  before  their  actual  application,  which  they  might  see 
proper.  The  sureties  of  Hill  had  no  interest  in  such  deposits. 
They  were  not  trust  funds  held  by  the  bank  for  their  benefit. 

It  is  true,  that  the  creditor,  having  obtained  security  for  his 
debt,  becomes  a  trustee  of  the  same  for  all  parties  concerned. 
If  he  obtains  judgment  against  the  principal  and  takes  out 
execution,  but  does  not  levy  it,  though  the  principal  debtor  has 
property  on  which  a  levy  might  be  made,  he  does  not,  unless  the 
execution  operates  as  a  lien,  by  delay,  however  long  continued, 
discharge  the  surety;  but  if  he  causes  a  levy  to  be  made,  he 
cannot  release  it  without  discharging  the  surety  to  the  extent 
of  the  value  of  the  property  levied  upon.  So  in  this  case,  the 
mere  fact  that  the  appellant  might  have  applied  the  deposits  to 


272  CHANGE  OF  CONTRACT. 

the  payment  of  the  debt  is  not  enough.  The  debt  due  from  the 
bank  to  Hill  on  his  deposit  account  was  not  a  collateral  security 
in  its  hands  to  the  debt  due  from  Hill  and  the  appellees  to  the 
bank.  Philbrooks  v.  McEwen,  29  Ind.  347;  Hampton  v.  Levy, 
1  McCord  Ch.  107 ;  Lang  v.  Brevard,  3  Strobh.  Eq.  59. 

In  the  case  of  Glazier  v.  Douglass,  32  Conn.  393,  the  plaintiff 
sued  the  defendant,  as  the  indorser  of  a  note  made  by  Henry 
Rogers  &  Co.,  for  $515,  payable  to  the  order  of  the  defendant, 
which  was  indorsed  by  him,  for  the  accommodation  of  the  makers, 
to  the  plaintiff.  At  and  after  the  maturity  of  the  note,  the 
makers,  who  became  insolvent,  were  indebted  to  a  firm^  of  which 
the  plaintiff  was  a  member  in  a  sum  not  exceeding  the  amount 
of  the  note  sued  on,  and  by  a  statute  of  the  State  the  plaintiff 
had  a  right  to  set  off  the  indebtedness  of  the  makers  of  the  note 
to  said  firm  against  the  amount  due  on  the  note.  The  plaintiff 
did  not  do  this,  but  with  a  full  knowledge  of  all  the  facts,  paid 
the  makers  the  amount  due  them,  and  then  brought  this  suit 
against  the  defendant  as  the  indorser  of  the  note. 

The  defendant  insisted  that  the  failure  of  the  plaintiff  to  set 
off  the  amount  due  from  Rogers  &  Co.  to  said  firm  against  the 
note  sued  on,  released  him  from  liability  as  indorser.  The  court 
held  that  he  was  not  released.  "We  quote  from  the  opinion,  as 
follows : 

"By  a  series  of  decisions  adopting  the  equitable  principles  of 
the  civil  law,  there  have  been  annexed  to  the  undertaking  of  a 
surety  in  a  case  like  this,  three  conditions,  and  if  either  is  broken 
by  the  creditor,  that  undertaking  becomes  inoperative,  and  the 
surety  is  discharged. 

"The  first  is  that  the  creditor  shall  present  the  note  to  the 
maker  for  payment  at  maturity,  and  if  dishonored,  use  due  dili- 
gence in  giving  notice  to  the  surety.  The  second  is  that  no 
obligatory  extension  of  the  time  of  payment  shall  be  given  which 
will  preclude  the  surety,  if  he  pay  the  note  to  the  creditor,  from 
enforcing  immediate  repayment  by  compulsory  process  from  the 
principal  debtor.  And  the  third  is,  that  the  creditor  shall  apply 
in  payment  of  the  debt,  or  hold  in  trust  for  the  benefit  of  the 
surety,  all  securities  which  he  may  receive  or  procure  for  that 
purpose  by  contract  or  operation  of  law,  so  that  if  compelled  to 
discharge  the  debt,  the  surety  may  be  subrogated  to  them.  *  *  * 

"In  respect  to  what  shall  be  deemed  a  security  within  the 
meaning  of  the  condition,  there  has  been  some  contrariety  of 


NATIONAL  MAHAIWE  BANK  v.  PECK.  273 

decision.  The  better  opinion  is,  that  it  must  be  a  mortgage, 
pledge  or  lien — some  right  to  or  interest  in  property  which  the 
creditor  can  hold  in  trust  for  the  surety,  and  to  which  the  surety, 
if  he  pay  the  debts  can  be  subrogated,  and  the  right  to  apply  or 
hold  must  exist  and  be  absolute. ' ' 

Had  Mote  and  Hair  paid  the  note  sued  on  to  the  bank,  would 
their  right  to  the  debt  due  from  the  bank  to  Hill  have  been  abso- 
lute? Could  they,  as  against  Hill  or  the  bank,  have  claimed 
to  be  subrogated  to  that  debt  ?  Did  the  bank  become  the  trustee 
of  its  own  debt  to  Hill,  and  hold  it  in  trust  for  Mote  and  Hair  ? 
"We  think  the  debt  due  from  the  bank  to  Hill  for  the  deposits 
made  by  Hill  was  not  a  trust  fund,  that  it  was  not  held  by  the 
bank  in  trust  for  the  appellees.  Pease  v.  Hirst,  5  Man.  &  R.  88. 

The  question  involved  in  this  case  is  one  of  some  practical 
importance,  and  we  have  endeavored  to  give  it  that  consideration 
which  its  importance  demands.  We  believe  that  the  conclusion 
which  we  have  reached  will  be  found  to  be  supported  by  the 
weight  of  authority  and  in  agreement  with  the  business  usages 
of  the  country. 

We  think  the  court  erred  in  overruling  the  demurrer  in  the 
fourth  paragraph  of  the  answer  of  Mote  and  Hair,  and  that  the 
judgment  below  should  be  reversed. 

It  is  ordered  that  upon  the  foregoing  opinion  the  judgment 
below  be  reversed  at  the  costs  of  appellee. 

Judgment  reversed. 


NATIONAL  MAHAIWE  BANK  v.  PECK.    1879. 
127  Mass.  298. 

Contract  on  a  promissory  note  for  $500,  dated  December  29, 
1875,  signed  "Jos.  A.  Benjamin,  Treas.,"  payable  to  the  order 
of  the  defendant  in  forty-five  days  after  date  at  the  plaintiff 
bank,  and  indorsed  by  the  defendant.  Trial  at  June  term,  1878, 
of  the  superior  court,  without  a  jury,  before  ROCKWELL,  J.,  who 
reported  the  case  for  the  determination  of  this  court,  in  sub- 
stance as  follows: 

Benjamin  kept  an  ordinary  banking  account  with  the  plaintiff 
bank.  At  the  time  of  giving  the  note  in  suit,  he  was  treasurer 
of  the  town  of  Egremont,  and  the  bank  gave  him  for  this  note 

18 


274  CHANGE  OF  CONTRACT. 

a  draft  to  be  used  for  the  payment  of  a  tax  due  from  the  town. 
The  note  and  the  proceeds  of  it  were  not  made  a  part  of  his 
account  with  the  bank,  and  the  bank  regarded  the  note  as  an 
official  or  town  matter. 

On  February  15,  1876,  when  this  note  matured,  all  things 
necessary  to  charge  the  defendant  as  indorser  were  done.  On 
that  day,  and  ever  since,  the  bank  held  a  note,  made  by  Benjamin, 
which  it  had  discounted,  signed  "Jos.  A.  Benjamin,"  dated 
November  13,  1875,  for  $1,500,  payable  in  three  months  after 
date  at  the  plaintiff  bank  to  one  Callender,  and  indorsed  by 
Callender.  And  on  said  February  15,  there  stood  to  the  credit 
of  Benjamin,  as  his  balance  of  account,  the  sum  of  $381.10,  and 
the  same  continued  so  to  stand  on  the  books  of  the  bank  until 
about  six  weeks  before  the  trial,  when  it  was  indorsed  as  of 
February  16,  1876,  on  the  note  for  $1,500. 

On  February  16,  1876,  the  day  of  the  maturity  of  the  note 
for  $1,500,  the  president  of  the  plaintiff  bank  and  its  principal 
financial  manager,  during  business  hours,  told  the  cashier,  if -the 
$381.10  standing  to  Benjamin's  credit  was  not  drawn  out  by 
his  checks  before  the  close  of  business  hours,  to  apply  it  on  the 
$1,500  note;  and  at  the  close  of  the  bank  for  that  day,  it  being 
found  that  Benjamin  had  drawn  no  checks  on  said  balance,  he 
again  directed  the  cashier  to  apply  it  on  the  $1,500  note. 

On  February  19,  1876,  during  business  hours,  the  defendant 
brought  to  the  bank  a  check  of  Benjamin,  made  and  handed  to 
defendant  on  that  day,  and  which  was  as  follows: 

"South  Egremont,  Mass.,  Feb.  15,  1876.  $381.  National  Ma- 
haiwe  Bank  pay  to  the  order  of  J.  A.  B.,  Treas.,  note  15th  inst., 
three  hundred  and  eighty-one  dollars.  Jos.  A.  Benjamin." 

The  defendant  at  the  same  time,  acting  at  the  request  of  Ben- 
jamin, tendered  to  the  cashier  of  the  plaintiff  bank  this  check 
and  $120  in  money  in  payment  of  the  note  in  suit,  and  demanded 
-the  note.  The  money  had  been  furnished  by  Benjamin,  but  it 
did  not  appear  that  he  informed  the  cashier  of  the  bank  of  this 
fact.  The  cashier  declined  to  receive  the  check  and  money,  and 
told  the  defendant  he  could  not  accept  the  check,  because  he  had 
been  directed  to  apply  the  balance  of  Benjamin's  account  on 
another  claim  held  by  the  bank,  meaning  the  $1,500  note.  After 
this  refusal,  the  cashier  did,  at  the  request  of  the  defendant, 
receive  the  $120  and  indorse  the  same  on  the  note  in  suit,  it 
being  at  the  time  understood  that  neither  party  intended  thereby 


NATIONAL  MAHAIWE  BANK  v.  PECK.  275 

to  waive  his  rights  in  reference  to  the  check.  The  $120  have 
been  retained  by  the  bank. 

It  is  not  the  practice  of  the  bank  to  charge  over-due  notes 
held  by  it  to  the  account  of  a  depositor  until  he  has  sufficient 
credits  to  pay  the  note.  Benjamin  became  a  bankrupt  in  the 
spring  of  1876,  and  died  in  July  or  August  of  that  year. 

Upon  the  foregoing  facts,  the  defendant  contended,  as  a  matter 
of  law,  that  the  plaintiff  was  not  entitled  to  recover;  and  the 
judge  so  ruled,  and  found  for  the  defendant.  If  this  ruling  was 
correct,  judgment  was  to  be  entered  for  the  defendant;  but  if 
the  plaintiff  was  entitled  to  recover,  judgment  was  to  be  entered 
for  him  for  the  sum  of  $381.10,  and  interest  from  February  16, 
1876. 

GRAY,  C.  J.  Money  deposited  in  a  bank  does  not  remain  the 
property  of  the  depositor,  upon  which  the  bank  has  a  lien  only ; 
but  it  becomes  the  absolute  property  of  the  bank,  and  the  bank 
is  merely  a  debtor  to  the  depositor  in  an  equal  amount.  Foley 
v.  Hill,  1  PhiUips,  399,  and  2  H.  L.  cas.  28 ;  Bank  of  Republic 
v.  Millard,  10  Wall.  152 ;  Carr  v.  National  Security  Bank,  107 
Mass.  45.  So  long  as  the  balance  of  account  to  the  credit  of 
the  depositor  exceeds  the  amount  of  any  debts  due  and  payable 
by  him  to  the  bank,  the  bank  is  bound  to  honor  his  checks,  and 
liable  to  an  action  by  him  if  it  does  not.  When  he  owes  to  the 
bank  independent  debts,  already  due  and  payable,  the  bank  has 
the  right  to  apply  the  balance  of  his  general  account  to  the  satis- 
faction of  any  such  debts  of  his.  But  if  the  bank,  instead  of 
so  applying  the  balance,  sees  fit  to  allow  him  to  draw  it  out, 
neither  the  depositor  nor  any  other  person  can  afterwards  insist 
that  it  should  have  been  so  applied.  The  bank,  being  the  absolute 
owner  of  the  money  deposited,  and  being  a  mere  debtor  to  the 
depositor  for  his  balance  of  account,  holds  no  property  in  which 
the  depositor  has  any  title  or  right  of  which  a  surety  on  an 
independent  debt  from  him  to  the  bank  can  avail  himself  by 
way  of  subrogation,  as  in  Baker  v.  Briggs,  8  Pick.  122,  and 
American  Bank  v.  Baker,  4  Met.  164,  cited  for  the  defendant. 
The  right  of  the  bank  to  apply  the  balance  of  account  to  the 
satisfaction  of  such  a  debt  is  rather  in  the  nature  of  a  set-off, 
or  of  an  application  of  payments,  neither  of  which,  in  the  absence 
of  express  agreement  or  appropriation,  will  be  required  by  the 
law  to  be  made  as  to  benefit  the  surety.  Glazier  v.  Douglass, 
32  Conn.  393;  Field  v.  Holland,  6  Cranch,  8,  28;  Brewer  v. 


276  CHANGE  OF  CONTRACT. 

Knapp,  1  Pick.  332 ;  Upham  v.  Lef avour,  11  Met.  174 ;  Bank  of 
Bengal  v.  Radakissen  Hitter,  4  Moore  P.  C.  140,  162. 

The  general  rule  accordingly  is,  that  where  moneys  drawn  out 
and  moneys  paid  in,  or  other  debts  and  credits,  are  entered,  by 
the  consent  of  both  parties,  in  the  general  banking  account  of  a 
depositor,  a  balance  may  be  considered  as  struck  at  the  date  of 
each  payment  or  entry  on  either  side  of  the  account ;  but  where 
by  express  agreement,  or  by  a  course  of  dealing,  between  the 
depositor  and  the  banker,  a  certain  note  or  bond  of  the  depositor 
is  not  included  in  the  general  account,  any  balance  due  from  the 
banker  to  the  depositor  is  not  to  be  applied  in  satisfaction  of 
that  note  or  bond,  even  for  the  benefit  of  a  surety  thereon,  except 
at  the  election  of  the  banker.  Clayton's  case,  1  Meriv.  572,  610; 
Bodenham  v.  Purchas,  2  B.  &  Aid.  39,  45 ;  Simpson  v.  Ingham, 
2  B.  &  C.  65 ;  S.  C.  3  D.  &  R.  249 ;  Pemberton  v.  Oakes,  4  Russ. 
154,  168 ;  Pease  v.  Hirst,  10  B.  &  C.  122 ;  S.  C.  5  Man.  &  Ryl. 
88 ;  Henniker  v.  Wigg,  Dav.  &  Meriv.  160,  171 ;  S.  C.  74  Q.  B. 
792,  795 ;  Strong  v.  Foster,  17  C.  B.  201 ;  Martin  v.  Mechanics 
Bank,  6  liar.  &  Johns.  235,  244;  State  Bank  v.  Armstrong,  4 
Dev.  519;  Commercial  Bank  v.  Hughes,  17  Wend.  94;  Allen 
y.  Culver,  3  Denio,  284,  191;  Voss.  v.  German  American  Bank, 
83  111.  599.  In  the  decision  in  McDowell  v.  Bank  of  Wilmington 
'&  Brandywine,  1  Harringt.  (Del.)  369,  and  in  the  dicta  in  Daw- 
son  v.  Real  Estate  Bank,  5  Pike,  283,  298,  cited  for  the  defend- 
ant, this  distinction  was  overlooked  or  disregarded. 

In  many  of  the  cases,  indeed,  the  money  appears  to  have  been 
deposited  after  the  debt  to  the  bank  matured,  so  that  the  case  was 
analogous  to  the  ordinary  one  of  a  payment,  which,  not  being  ap- 
propriated by  the  debtor  might  be  appropriated  by  the  creditor. 
But  where  the  balance  of  account  is  in  favor  of  the  depositor 
;when  his  debt  to  the  bank  becomes  payable,  it  is  a  case  of  mutual 
'debts  and  credits,  which,  except  in  proceedings  in  bankruptcy 
or  insolvency,  neither  the  depositor  nor  his  surety  has  the  right 
to  require  to  be  set  off  against  each  other.  Judge  LOWELL,  in 
allowing  money  on  deposit  to  the  credit  of  a  bankrupt  to  be  set  off 
in  bankruptcy  against  the  aggregate  debt  due  from  him  to  the 
bank,  said:  "This  deposit,  though  it  operates  as  security  and  as 
payment,  was  not  intended  for  either,  but  is  made  so  by  the  bank- 
ruptcy of  the  debtor."  In  re  North,  2  Lowell  487.  See,  also, 
Demmon  v.  Boylston  Bank,  5  Cush.  194;  Strong  v.  Foster,  17 
C.  B.  217. 


NATIONAL  MAHAIWE  BANK  v.  PECK.  277 

In  Strong  v.  Foster,  a  depositor  gave  to  his  bankers  a  promis- 
sory note  with  a  surety,  which  was  not  entered  in  his  general 
banking  account ;  and  it  was  held,  that  the  surety,  when  sued  by 
the  bankers  on  the  note,  could  not  set  up,  either  as  payment  or  by, 
way  of  equitable  defense,  that  shortly  after  the  note  matured 
the  balance  of  account  was  in  favor  of  the  depositor  to  a  greater 
amount,  and  the  plaintiffs  did  not  apply  that  balance  in  discharge 
of  the  note,  or  inform  the  defendant  for  three  years  afterwards 
that  the  note  remained  unpaid.  But  the  reasoning  of  the  court 
applies  quite  as  strongly  when  the  balance  in  favor  of  the  deposi- 
tor exists  at  the  time  when  his  debt  becomes  payable,  as  when  it  is 
created  by  subsequent  deposits.  Chief  Justice  JERVIS  said: 
' '  Here  the  note  was  never  entered  in  the  account  at  all ;  the  rule 
as  to  adjusting  balance  therefore  does  not  apply. "  "It  would  be 
essentially  altering  the  position  of  parties,  to  establish  that,  be- 
cause a  banker,  who  holds  a  note  of  a  third  person  for  a  customer, 
has  a  balance  in  his  hands  in  the  customer 's  favor  at  the  maturity; 
of  the  note,  such  third  person  is  thereby  discharged,  if  it  turns 
out  that  the  note  was  given  by  him  as  surety.  There  is  no  author- 
ity in  equity  for  any  such  position,  and  none  certainly  in  law." 
17  C.  B.  216,  217.  And  Mr.  Justice  WILLES  observed:  "As  to 
what  was  said  on  the  part  of  the  defendant,  that,  if  a  set-off  arises 
between  the  creditor  and  the  principal  debtor,  the  liability  of  the 
surety  of  the  note  is  extinguished;  that  doctrine  would  lead  to 
singular  results.  These  securities  are  often  given  to  increase 
credits  of  bankers  to  their  customers.  If  the  liability  of  the 
maker  were  to  depend  upon  the  state  of  the  customer's  account 
at  any  one  moment,  he  might  never  undergo  the  liability  contem- 
plated at  all.  The  security  is  given  without  any  reference  to  the 
other  side  of  the  account.  This  is  the  first  time,  I  believe,  that  it 
has  ever  been  suggested,  that  when  a  note  given  under  circum- 
stances like  these  falls  due,  and  there  is  a  balance  in  favor  of  the 
customer  at  the  time,  that  balance  must  of  necessity  be  applied  to 
the  discharge  of  the  note. "  17  C.  B.  224.  Even  the  usual  infer- 
ence from  the  entry  of  such  a  note  in  the  account  may  be  con- 
trolled by  other  circumstances.  City  Discount  Co.  v.  McLean, 
L.  R.  9  C.  P.  692. 

In  the  case  at  bar,  it  appears  that  the  consideration  received  by 
Benjamin  from  the  plaintiff  bank  for  the  note  in  suit  was  to  be 
used  by  him  in  his  official  capacity  as  town  treasurer,  the  note  was 
regarded  by  the  bank  as  an  official  or  town  matter,  and  neither- 


278  CHANGE  OP  CONTRACT. 

the  note  nor  its  consideration  was  ever  made  part  of  his  general 
banking  account;  and  that,  when  the  check  in  favor  of  the 
defendant  was  drawn  by  Benjamin  and  presented  at  the  bank, 
the  bank  held  a  personal  note  of  Benjamin,  overdue  and  exceed- 
ing in  amount  the  balance  of  account  is  in  his  favor  at  the  time, 
the  president  of  the  bank  had  directed  the  cashier  to  apply  this 
balance  to  the  latter 's  note,  and  the  cashier  so  informed  the  de- 
fendant when  he  presented  the  check.  Under  these  circum- 
stances, neither  Benjamin,  the  maker,  nor  the  defendant,  the 
indorser,  has  the  right  to  insist  that  this  balance  of  account  should 
be  applied  to  the  satisfaction  of  the  note  in  suit,  rather  than  of 
the  other  note  of  Benjamin;  and,  according  to  the  terms  of  the 
report,  there  must  be 

Judgment  for  the  plaintiff. 


PURSIFULL  v.  PINEVILLE  BANKING  COMPANY. 

97  Ky.  154;  53  Am.  St.  Rep.  409. 

EASTIN,  J.  This  action  was  brought  December  12,  1893,  in 
the  Bell  Circuit  Court,  by  appellee,  as  assignee  of  the  Pineville 
Banking  Company,  against  appellant  and  one  Hurst,  on  a  note 
executed  by  them  December  23,  1889,  and  payable  thirty  days 
thereafter  to  the  order  of  said  banking  company,  and  negotiable 
and  payable  at  said  bank.  This  note  was  discounted  at  and  was 
held  and  owned  by  said  bank  at  the  time  of  its  maturity,  January 
23,  1890. 

Appellant  filed  an  answer  in  the  court  below,  in  which  he 
alleged,  among  other  things,  that  he  was  merely  a  surety  and  that 
his  co-defendant,  Hurst,  was  the  principal  in  said  note,  and  that 
these  facts,  as  well  as  the  fact  that  he  had  received  no  part  of  the 
proceeds  of  said  discount,  were  well  known  to  the  bank  at  the 
time.  Said  answer  further  alleges  that,  at  the  time  said  note 
matured,  and  prior  thereto,  and  for  some  time  thereafter,  the 
principal  therein  was  a  depositor  with,  and  had  to  his  credit  as  a 
general  deposit  in  said  bank  a  large  sum  of  money,  much  more 
than  sufficient  to  pay  said  note,  that  the  bank  had  a  lien  thereon 
for  the  payment  of  said  note,  but,  without  the  knowledge  or  con- 
sent of  appellant,  released  its  said  lien  and  permitted  Hurst,  the 


PURSIFULL  v.  PINEVILLE  BANKING  CO.  279 

principal  in  said  note,  to  withdraw  the  whole  of  said  deposit, 
leaving  the  note  unpaid ;  that  it  did  not,  at  the  maturity  of  said 
note,  or  any  other  time,  notify  appellant  that  the  note  was  un- 
paid, and  that  he,  knowing  that  Hurst  had  this  large  deposit  in 
the  bank  at  and  after  the  maturity  of  the  note,  supposed  it  had 
been  paid  until  this  suit  was  brought  against  him  thereon  nearly 
four  years  thereafter.  The  answer  further  alleges  that  Hurst  has, 
in  the  meantime,  become  and  is  wholly  insolvent,  and  that  if  he 
shall  be  compelled  to  pay  said  note  by  reason  of  the  bank  having 
released  its  lien  on  said  deposit,  he  will  now  be  entirely  without 
remedy  against  his  principal. 

To  this  answer  appellee  filed  a  general  demurrer,  which  was 
sustained  by  the  court,  and  thereupon,  at  the  same  term  of  court, 
appellant  offered  to  file  and  tendered  an  amended  answer  in 
which,  after  reiterating  the  statements  of  his  original  answer,  he 
also  charges  that  this  notg^,  being  made  negotiable  and  payable  at 
the  bank,  was,  in  effect,  an  order  from  Hurst  on  said  T)ank  to 
"appropriate  and  apply  from  his  deposit  therein  a  sufficient  sum 
to  pay  the  note  at  maturity ;  that  the  bank  was  thereby  made  his 
agent  to  pay  the  same,  and  that,  by  the  negligence  of  said  bank, 
this  application  was  not  made,  and  the  note  not  paid.  It  further 
pleads  and  relies  upon  the  failure  of  the  bank  to  apply  to  the  pay- 
ment of  the  note  other  deposits  made  by  Hurst  after  the  maturity 
of  the  note  and  when  his  insolvency  was  known  to  the  bank. 

To  the  filing  of  this  amended  answer  appellee  objected  and 
insisted  on  his  demurrer  to  the  answer  as  offered  to  be  amended, 
and  the  court  sustained  the  objection  and  refused  to  allow  the 
amended  answer  to  be  filed.  Appellant  declined  to  plead  further, 
the  petition  was  taken  for  confessed,  a  judgment  for  the  amount 
of  the  note  and  interest  was  entered  against  him,  and  from  that 
judgment  he  prosecutes  this  appeal. 

In  view  of  this  statement  from  the  record,  and  of  the  action 
of  the  court  below  in  sustaining  the  demurrer  to  the  original 
answer  and  refusing  to  allow  the  amended  answer  to  be  filed,  we 
think  there  is  but  one  question  to  be  considered  by  this  court. 

That  question  is,  whether  or  not,  in  this  state,  the  surety  on  a 
negotiable  note,  made  payable  at,  and  discounted  to  and  owned 
by  a  bank  which  holds,  on  general  deposit  for  the  principal  in  the 
note,  at  the  maturity  thereof,  a  sum  more  than  sufficient  to  pay 
the  same,  is  discharged  from  liability  thereon,  by  reason  of  the 
failure  of  such  bank  to  apply  to  the  payment  of  the  note  a  suf- 


280  CHANGE  OF  CONTRACT. 

ficient  sum  from  this  unappropriated  deposit,  and  by  reason  of 
its  permitting  the  entire  deposit  to  be  checked  out,  for  other  pur- 
poses, by  the  principal,  who  afterward  becomes  insolvent? 

This  question  has  never  been  settled  by  any  adjudication  of 
this  court,  and  we  are  aware  that  the  decisions  of  the  courts  of 
other  states  are  not  in  entire  harmony,  and  that  there  is  some  con- 
trariety of  opinion  among  the  textwriters  on  the  subject. 

In  considering  the  proposition,  it  is  well  for  us  to  remember 
that  this  bank  was  the  absolute  owner  of  this  note  and  not  a  mere 
collecting  agent  to  look  after  the  proper  presentment  of  the  note, 
and  to  demand  payment  in  behalf  of  another.  The  bank  was 
the  creditor  of  Hurst,  the  principal  in  the  note,  to  the  amount 
thereof,  and  was  his  debtor  in  the  amount  of  the  deposit  then 
standing  to  Hurst's  credit  in  the  bank. 

As  to  the  right  of  the  bank,  under  the  doctrine  of  setoff,  to 
have  applied  to  the  payment  of  this  note,  from  Hurst's  unap- 
propriated deposit,  enough  money  to  pay  the  same,  by  simply 
charging  the  note  to  his  account,  there  seems  to  be  no  difference 
of  opinion,  and  it  is  only  as  to  the  duty  of  the  bank  in  this 
respect  as  between  it  and  the  surety  on  the  note,  that  the  authori- 
ties differ. 

As  to  this,  Mr.  Morse,  in  his  text-book,  says:  "If  a  note  pay- 
able at  a  bank  is  sent  there  for  collection,  and  the  bank  fails  to 
apply  an  unappropriated  deposit  of  the  maker  to  its  payment, 
the  indorser  is  discharged.  When  a  creditor  has  within  his 
control  the  means  of  paying  the  debt  out  of  property  of  the 
debtor  properly  applicable  to  the  purpose,  and  does  not  use  the 
opportunity,  but  gives  up  the  property,  the  surety  is  dis- 
charged": 2  Morse  on  Banks  and  Banking,  3d  ed.,  sec.  562. 

A  similar  doctrine  is  laid  down  in  some  of  the  decisions  of  the 
state  courts,  particularly  in  the  cases  from  Pennsylvania,  in  one 
of  which  the  learned  judge,  after  referring  to  the  well-recognized 
principles  that  the  relation  between  the  bank  and  its  depositor 
is  simply  one  of  debtor  and  creditor,  and  that  the  bank  has  the 
right  to  apply  an  unappropriated  general  deposit  to  the  payment 
of  a  matured  note  held  by  it  against  its  depositor,  which  right 
it  may  waive  unless  the  rights  of  third  parties  have  intervened, 
propounds  the  following  query  which  s.eems  to  us  very  aptly  to 
illustrate  the  situation  in  this  case,  to-wit :  * '  If  I  am  the  holder 
of  A's  note  indorsed  by  C,  and  when  the  note  matures  I  am  in- 
debted to  A  in  an  amount  equal  to  or  exceeding  the  note,  can  I 


PURSIFULL  v.  PINEVILLE  BANKING  CO.  281 

have  the  note  protested  and  hold  C  as  indorser  ?  It  is  true  A 's 
note  is  not  technically  paid,  but  the  right  to  setoff  exists,  and 
surely  C  may  show,  in  relief  of  his  obligation  as  surety,  that  I  am 
really  the  debtor  instead  of  the  creditor  of  A.  If  this  is  so  be- 
tween individuals,  why  is  it  not  so  between  a  bank  and  in- 
dividuals?" Commercial  Nat.  Bank  v.  Henninger,  105  Pa.  St. 

Counsel  for  appellee,  however,  in  support  of  their  contention, 
that  the  conduct  of  the  bank  in  this  case,  as  set  forth  in  the 
answer  and  admitted  by  the  demurrer,  did  not  operate  as  a  dis- 
charge of  the  surety,  rely  mainly  upon  the  cases  of  National  Ma- 
haiwe  Bank  v.  Peck,  127  Mass.  302,  34  Am.  Eep.  368,  and  Second 
Nat.  Bank  v.  Hill,  76  Ind.  223,  40  Am.  Rep.  239. 

As  to  the  former,  the  case  from  Massachusetts,  it  is  sufficient  to 
say  that  it  is  clearly  distinguishable  from  this  case.  There  the 
bank  held  two  notes  of  B.,  one  of  which  was  executed  by  him  in 
his  official  capacity,  as  treasurer  of  a  town,  and  the  other  was 
executed  by  him  individually.  B.  kept  only  a  personal  account 
with  the  bank.  The  note  executed  by  him  in  his  official  capacity 
was  indorsed  by  P.,  who,  a  few  days  after  the  maturity  of  that 
note,  presented  to  the  bank  the  check  of  B.  on  his  individual  ac- 
count, and  demanded  that  it  be  applied  to  the  payment  of  the 
official  note  on  which  P.  was  indorser.  To  this  demand  the  bank 
answered  that  it  had  already  applied  B's  deposit  toward  the  pay- 
ment of  his  individual  note,  which  had  also  matured,  though  not 
until  after  the  maturity  of  the  official  note.  In  the  action  which 
was  brought  against  P.  by  the  bank  to  enforce  the  collection  of 
this  official  note  which  he  had  indorsed,  it  was  shown  that  neither 
this  note  nor  its  proceeds  ever  went  into  or  constituted  any  part 
of  B 's  personal  account  in  the  bank,  and  it  was  accordingly  held 
that  the  bank,  as  against  the  surety  on  this  official  note,  had  the 
right  to  charge  up  B's  personal  note,  which  had  also  matured, 
against  his  personal  account,  as  it  had  already  done  before  this 
demand  was  made  upon  it  to  pay  the  official  note  out  of  this 
account.  The  distinction  between  that  case  and  this  is  apparent. 

The  case  of  Second  Nat.  Bank  v.  Hill,  76  Ind.  223,  40  Am.  Rep. 
239,  relied  on  by  counsel  for  appellee,  does  fully  support  the 
position  for  which  they  contend. 

But  in  that  case  it  is  also  held,  in  conformity  with  the  well 
settled  doctrine  on  the  subject,  that  a  bank  has  the  right,  under 
the  state  of  facts  admitted  in  this  case,  to  apply  the  deposit  to 
the  payment  of  its  demand,  if  it  chooses  to  do  so.  It  is  further- 


282  CHANGE  OF  CONTRACT. 

more  held  in  that  case  that  a  creditor  may  not  release  a  collateral 
security  by  the  principal  debtor,  or  a  lien  which  it  may  hold  on 
his  property,  without  discharging  the  surety,  and  these  proposi- 
tions are,  we  believe,  recognized  as  fundamental  in  all  the  cases. 
If  the  security  be  in  the  nature  of  a  lien  by  pledge  of  collateral, 
or  by  mortgage,  or  under  an  execution  against  the  principal 
debtor's  property,  then,  in  any  such  case,  it  would  be  admitted 
that  a  release  by  the  creditor  of  such  security  would  discharge 
the  surety,  to  the  extent,  at  least,  of  the  value  of  the  security  so 
surrendered. 

Now,  while  it  is  true  that  the  bank  in  this  case  had  not,  strictly 
speaking,  a  lien  upon  any  money  or  property  belonging  to  Hurst, 
and  while  the  surety  could  not,  perhaps,  by  paying  this  debt  to 
the  bank,  have  become  entitled  to  demand  of  it  repayment  out  of 
Hurst's  deposit,  which  is  laid  down  by  some  of  the  authorities  as 
the  true  test,  yet,  it  seems  to  us  that  this  bank,  by  the  voluntary 
surrender  to  the  principal  of  money  more  than  sufficient  to  pay 
this  debt,  and  which  it  is  conceded  that  it  had  a  right  to  apply 
to  that  purpose,  has  been  equally  reckless  of  the  interests  of  this 
surety  as  though  it  had  surrendered  a  security  on  which  it  had  a 
specific  lien.  As  said  by  the  text-writer,  above  quoted  from,  in 
criticising  this  case  in  76  Indiana :  "If  the  bank  at  the  maturity 
of  a  note  held  by  it  holds  funds  that,  by  the  scratch  of  a  pen,  it 
could  apply  upon  the  note,  thus  securing  itself,  it  is  difficult  to 
see  why  neglecting  so  easy  a  means  of  security  is  not  as  improper 
as  giving  up  collateral  expressly  designated  for  the  purpose  of 
securing  the  note  " :  2  Morse  on  Banks  and  Banking,  3d  ed.,  sec. 
563. 

The  right  on  part  of  this  bank  to  retain  a  sufficiency  of  Hurst 's 
deposit  gave  it  the  absolute  control  of  an  ample  security  for  the 
payment  of  this  debt.  A  lien  by  pledge  could  give  no  higher 
right  to  the  security  than  this  bank  had.  It  had  the  unquestioned 
right  to  actually  appropriate  and  apply  this  money,  which  it 
owed  to  Hurst,  to  the  payment  of  Hurst's  debt  to  it.  It  matters 
not  whether  the  right  to  the  security  has  its  origin  in  the  doctrine 
of  setoff  or  under  a  pledge  as  collateral.  It  is  the  extent  of  the 
right  to  the  security,  rather  than  the  source  from  which  that  right 
springs,  that  should  determine  the  question  whether  the  creditor 
can  voluntarily  surrender  the  security  without  releasing  the 
surety;  and,  having  had  in  its  hands  a  fund  which  it  could,  by 
mere  exercise  of  its  option  to  do  so,  have  used  for  the  satisfaction 


KLAPWORTH  v.    DRESSLER.  283 

of  this  debt,  and  which,  we  may  assume,  the  dictates  of  ordinary 
diligence  and  of  prudent  banking  would  have  prompted  it  to 
thus  use,  this  bank  has,  in  our  judgment,  been  guilty  of  bad 
faith  toward  the  surety,  who,  according  to  the  facts  as  they  are 
admitted  here,  knew  of  this  large  deposit  to  the  credit  of  his 
principal,  who  received  no  notice  of  the  non-payment  of  the 
note  until  nearly  four  years  thereafter,  and  who  assumed,  as  he 
had  a  right  to  do  under  these  circumstances,  that  the  note  had 
been  paid  at  maturity. 

If  the  facts  be  as  alleged  in  the  answer  and  admitted  by  the 
demurrer,  and  as  we  are  bound,  therefore,  to  assume  them  to  be, 
this  bank  has  shown  such  an  utter  disregard  of,  and  such  absolute 
indifference  to,  the  interests  of  the  surety,  as  to  entitle  him  to 
a  release  from  the  liability  which  would  have  been  satisfied  by 
the  principal,  if  the  bank  had  simply  chosen  to  have  it  satisfied, 
and  had  exercised  its  opinion  in  favor  of,  instead  of  against,  the 
surety. 

"Wherefore,  the  judgment  of  the  lower  court  sustaining  the 
demurrer  to  the  answer  and  rendering  judgment  against  appel- 
lant is  reversed,  and  the  action  is  remanded  for  further  proceed- 
ings consistent  with  this  opinion. 


CHAPTER  VII. 

EFFECT  ON  CREDITOR  OF  AGREEMENT  BETWEEN  DEBTORS  AS 
TO  PRIMARY  LIABILITY. 

a.  When  the  grantee  in  a  deed  assumes  and  agrees  to  pay  a 
mortgage  on  the  premises  conveyed,  on  which  the  grantor  is 
personally  liable,  the  grantee  becomes  the  principal  debtor 
and  the  grantor  the  surety  for  the  payment  of  the  mortgage 
debt;  and  an  extension  of  time  to  the  grantee  will  release 
the  grantor. 

KLAPWORTH  v.  DRESSLER.     1860. 
2  Beasley's  Chancery  (N.  J.)  62;  78  Am.  Dec.  69. 

Bill  to  foreclose  mortgage  filed  by  Klapworth  and  wife  against 
Dressier  and  Ise.     The  opinion  states  the  case. 
By  court,  GREEN,  Chancellor.    It  appears  by  the  master's  re- 


284  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

port  that  the  mortgage  in  question  was  given  by  the  defendant 
Dressier,  on  the  eleventh  of  August,  1853,  for  the  whole  purchase- 
money  of  the  mortgage  premises  at  that  time  conveyed  to  him 
by  the  complainants.  On  the  first  of  August,  1854,  Dressier  con- 
veyed the  premises  to  Ise,  the  other  defendant,  by  a  deed  of  bar- 
gain and  sale,  stating  therein  that  the  premises  are  sold  "subject 
to  a  mortgage  for  three  hundred  dollars,  which  Herman  Ise  does 
hereby  agree  and  assume  to  pay,  and  it  is  so  understood  by  the 
parties  to  these  presents."  The  master  further  reports  that, 
in  his  opinion,  the  said  Herman  Ise  should  be  decreed  to  pay  the 
deficiency  (if  any)  with  interest  and  costs,  after  applying  to  the 
payment  of  the  debt  the  proceeds  of  the  sale  of  the  mortgaged 
premises,  and  to  be  personally  liable  to  the  complainant  therefor. 

1.  Is  Ise,  the  purchaser,  liable  to  the  complainant  for  the 
deficiency  ? 

2.  Can  the  liability  be  enforced  in  this  form  of  proceeding  1 
The  premises  are  not  merely  conveyed  to  the  plaintiff  subject 

to  the  mortgage  debt.  When  this  is  done,  the  grantee  takes  the 
premises  subject  to  the  incumbrance,  but  incurs  no  personal  re- 
sponsibility. But  the  grant  is  here  made  upon  the  specific  condi- 
tion that  the  grantee  agrees  and  assumes  to  pay  the  debt.  By 
the  acceptance  of  the  title  the  clause  becomes  his  covenant,  and 
he  thereby  becomes  bound  to  the  grantor  to  pay  the  mortgage 
debt,  and  liable  to  him  for  any  deficiency  which  may  exist  upon 
a  sale  of  the  mortgaged  premises:  Finley  v.  Simpson,  22  N.  J. 
L.  311  (53  Am.  Dec.  252),  and  cases  there  cited. 

Does  this  liability  inure  in  equity  to  the  complainants?  and 
may  it  be  enforced  for  their  benefit?  If  the  complainants,  after 
a  sale  of  the  mortgaged  premises,  should  enforce  payment  of 
the  balance  by  an  action  at  law  against  Dressier  upor  his  bond, 
it  is  clear  that  he  would  have  his  remedy  over  against  Ise.  May 
the  complainants  have  their  remedy  in  equity  directly  against 
Ise  when  Dressier  is  insolvent,  or  no  remedy  can  be  had  against 
him  personally? 

Where  a  grantee  in  a  deed  covenants  with  the  grantor  to  pay 
off  an  incumbrance  subsisting  upon  the  premises,  if  the  grantor 
is  personally  liable  for  the  payment  of  the  incumbrance,  the 
grantee,  by  virtue  of  the  agreement,  is  regarded  in  equity  as  the 
principal  debtor,  and  the  grantor  as  a  surety  only.  And  it  is  also 
a  principle  in  equity,  that  ' '  a  creditor,  is  entitled  to  the  benefit 
of  all  collateral  obligations  for  the  payment  of  the  debt,  which  a 


KLAPWORTH   v.    DRESSLBR.  285 

person  standing  in  the  situation  of  a  surety  for  others  has  re- 
ceived for  his  indemnity,  and  to  relieve  him  or  his  property 
from  liability  for  such  payment":  Curtis  v.  Tyler,  9  Paige  432; 
Halsey  v.  Eeed,  Id.  446 ;  King  v.  Whitely,  10  Id.  465 ;  Blyer  v. 
Monholland,  2  Sandf.  Ch.  478;  Kawson  v.  Copland,  Id.  251; 
Trotter  v.  Hughes,  12  N.  Y.  74  (62  Am.  Dec.  137). 

These  cases  fully  establish  the  principles  above  stated,  and 
recognize  their  application  to  a  ease  like  that  now  before  the 
court.  The  case  of  Blyer  v.  Monholland,  2  Sandf.  Ch.  478,  is 
directly  in.  point.  Adopting  and  applying  these  principles,  they 
control  the  present  case. 

Dressier  is  legally  liable  to  the  complainant  for  the  payment 
of  the  complainant 's  mortgage.  Ise  has  covenanted  with  Dressier 
to  pay  the  debt,  and  is  eventually  liable.  It  is  a  part  of  the  price 
which  he  was  to  pay  for  the  premises.  Whether  the  covenant 
bound  him  to  pay  the  debt  to  Dressier,  or  directly  to  the  com- 
plainants, is  in  equity  immaterial.  The  effect  of  this  arrange- 
ment made  Dressier  in  equity  the  surety  of  Ise  in  respect  of  the 
mortgage  debt  to  the  complainants.  The  obligation  inured  in 
equity  to  their  benefit.  This  result  is  perfectly  equitable  and 
just,  as  between  all  the  parties.  The  debt  is  justly  due  and 
owing  to  the  complainants.  Ise  is,  by  the  terms  of  his  deed, 
bound  to  pay  it.  It  is  a  part  of  the  price  of  the  land  to  which 
he  holds  the  title.  Dressier  is  not  in  equity  liable  for  the  debt. 
He  has  no  interest  in  the  land.  He  parted  with  his  interest  to 
Ise,  and  as  a  part  of  the  price,  received  his  covenant  to  pay  this 
debt.  In  equity,  the  debt  is  the  debt  of  Ise,  and  Dressier  the 
mere  security.  If  Dressier  should  be  compelled  to  pay,  he  would 
have  recourse  over  immediately  to  Ise.  If,  therefore,  Dressier 
were  able  and  willing  to  pay  the  debt,  the  decree  against  Ise  is  in 
accordance  with  equity.  But  the  bill  charges,  and  the  master 
reports,  that  Dressier  is  insolvent,  and  if  this  relief  is  denied 
the  complainants,  the  result  will  be  that  the  complainants  lose 
their  debt,  and  Ise  requires  title  to  the  land  without  paying  the 
price  which  he  covenanted  to  pay.  I  cannot  doubt  that  a  decree 
against  Ise,  as  prayed  for  in  the  bill  of  complaint,  is  in  strict 
accordance  with  the  principles  of  equity. 

It  remains  to  be  considered  whether  the  complainants  are 
entitled  to  such  relief  upon  a  bill  to  foreclose. 

In  New  York,  on  a  bill  filed  for  the  satisfaction  of  a  mortgage, 
it  is  the  practice  to  decree  payment  by  the  mortgagor,  or  by  any 


286  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

other  person  who  may  have  become  security  for  the  payment  of 
the  debt,  of  the  balance  of  the  debt  remaining  unsatisfied  after  a 
sale  of  the  mortgaged  premises.  This  is  done,  however,  by  virtue 
of  the  express  provisions  of  their  statute :  2  R.  S.  191,  sees.  152, 
154  (1829). 

Independent  of  statutory  provision,  the  rule  of  equity  is,  that 
a  bill  to  foreclose  is  in  the  nature  of  a  proceeding  in  rem,  and 
the  party  is  confined  in  his  remedy  to  the  pledge.  The  suit  is 
not  intended  to  act  in  personam:  Dunkley  v.  Van  Buren,  3 
Johns.  Ch.  331. 

In  this  case,  the  bill  was  filed  to  foreclose  a  mortgage  given  to 
secure  the  payment  of  a  bond.  The  bill,  in  form,  was  an  ordi- 
nary foreclosure  bill.  The  complainant  applied  for  a  decree 
directing  the  mortgagor,  in  case  of  a  deficiency  upon  the  sale  of 
the  mortgaged  premises,  to  pay  the  remainder  of  the  debt.  It 
was  ruled  that  his  proper  remedy  was  at  law  upon  the  bond: 
Hunt  v.  Lewin,  4  Stew.  &  P.  138. 

But  if  the  bond  be  lost,  or  if  there  be  other  special  circum- 
stances which,  independently  of  the  mortgage,  give  the  court 
jurisdiction  over  the  demand,  a  decree  against  the  mortgagor  will 
be  made  for  the  balance  of  the  debt  remaining  unsatisfied  by  a 
sale  under  the  mortgage:  Green  v.  Crockett,  2  Dev.  &  B.  Eq. 
390;  Crutchfield  v.  Coke,  6  J.  J.  Marsh.  89. 

In  this  case,  the  complainant  has  no  remedy  whatever  at  law 
against  Ise.  The  claim  is  purely  equitable,  and  must  be  enforced, 
if  at  all,  in  a  court  of  equity.  The  bill  is  framed  with  a  view 
to  this  form  of  remedy,  and  prays  for  this  specific  relief.  It 
charges  that  Ise  is  responsible  for  the  debt.  He  has  had  a  full 
opportunity  of  answering.  Under  these  circumstances,  there  is 
no  reason  why  he  should  not  be  decreed  to  pay  the  debt  under 
the  bill. 


CALVO  v.  DAVIES.    1878. 
73  N.  T.  211;  29  Am.  Rep.  130. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  first  judicial  department,  affirming  a  judgment  in 
favor  of  defendant  Davies,  entered  upon  an  order  sustaining  a 
demurrer  to  the  complaint  on  his  part.  (Keported  below,  8  Hun 
222.) 


CALVO    V.    DAVIES.  287 

This  action  was  brought  to  foreclose  a  mortgage.  The  com- 
plaint alleged  in  substance  the  execution  of  the  mortgage  by 
defendant  Davies  and  wife  as  collateral  security  for  the  bond  of 
Davies,  the  assignment  of  the  bond  and  mortgage  to  plaintiff, 
and  that  there  had  been  a  default,  and  that  there  was  a  specified 
amount  due  and  unpaid  thereon.  The  complaint  further  alleged 
that  defendant  Davies  and  wife  conveyed  the  premises  to  defend- 
ant Leslie,  who  took  the  conveyance  subject  to  the  mortgage,  and 
in  and  by  the  conveyance  assumed  and  agreed  to  pay  the  same ; 
that  on  the  21st  day  of  November,  1872,  by  an  agreement  between 
plaintiff  and  Leslie,  "the  time  for  the  payment  of  the  principal 
sum  aforesaid  was  extended  from  the  8th  day  of  March,  1872, 
to  the  15th  day  of  October,  1874,  with  the  express  understanding 
that  the  said  bond  and  the  mortgage  should  remain  in  every 
other  respect  unaffected  by  said  agreement, ' '  also,  that  Leslie  sub- 
sequently conveyed  the  premises  to  defendant  "Woodruff.  Plain- 
tiff asked  judgment  for  any  deficiency  against  defendants  Davies 
and  Leslie. 

Defendant  Davies  demurred,  on  the  ground  that  the  complaint 
as  to  him  did  not  state  facts  sufficient  to  constitute  a  cause  of 
action. 

ANDREWS,  J.  The  mortgaged  premises  became,  on  the  convey- 
ance by  Davies  to  Leslie  of  the  equity  of  redemption,  as  between 
Davies  and  his  grantee,  the  primary  fund  for  the  payment  of  the 
mortgage ;  but  the  right  of  the  mortgagee  to  resort  to  the  bond  for 
the  collection  of  his  debt  was  not  affected  or  impaired  by  the 
conveyance.  Davies  could  not,  by  any  dealing  or  contract  with 
Leslie,  change  the  rights  of  the  creditor  to  proceed  on  the  bond, 
or  compel  him  to  resort  in  the  first  instance  to  the  land  (March 
v.  Pike,  10  Paige  595).  On  the  other  hand  Davies'  relation  to 
the  debt  was  not  changed  by  his  conveyance  so  as  to  take  away  his 
right  as  debtor,  to  pay  the  debt  at  any  time  after  it  became  due, 
and  upon  his  paying  the  debt,  either  voluntarily  or  by  compul- 
sion, he  would,  upon  the  doctrine  of  equitable  subrogation,  be 
entitled  to  be  substituted  to  the  mortgage  security  as  it  originally 
existed,  with  the  right  to  proceed  immediately  against  the  land 
for  his  indemnity.  (Tice  v.  Annin,  2  J.  Ch.  125;  Vanderkemp 
v.  Shelton,  11  Paige  28;  Marsh  v.  Pike,  supra.)  The  mortgagee, 
after  the  conveyance  by  Davies,  could  not  deal  with  the  grantee 
of  the  equity  of  redemption,  to  the  prejudice  of  his  right  of  sub- 
rogation, without  discharging  Davies  from  liability  for  the  debt, 


288  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

either  wholly  or  pro  tanto.  If,  for  example,  he  had,  pursuant  to 
an  agreement  with  Leslie,  without  the  consent  of  Davies,  satisfied 
or  released  the  lien  of  the  mortgage,  it  is  plain  that  he  would 
thereby,  as  to  Davies,  have  discharged  the  debt,  at  least  to  the 
extent  of  the  value  of  the  land.  The  rule  that  a  mortgagee  is 
bound,  in  dealing  with  his  security  and  with  the  bond,  to  observe 
the  equitable  rights  of  third  persons,  of  which  he  has  notice,  has 
been  frequently  recognized.  (Tice  v.  Annin,  supra;  Halsey  v. 
Heed,  9  Paige  446 ;  Stevens  v.  Cooper,  1  J.  Ch.  425 ;  Howard  Ins. 
Co.  v.  Halsey,  8  N.  Y.,  271.)  And  the  doctrine  that  a  surety  is 
discharged  by  dealings  between  the  creditor  and  principal  debtor, 
inconsistent  with  the  rights  of  the  surety,  has  been  applied, 
although  the  creditor  did  not  know,  in  the  origin  of  the  transac- 
tion, that  one  of  the  parties  was  a  surety,  and  also  when,  by  an 
arrangement  between  two  original  joint  and  principal  debtors, 
one  of  them  assumed  the  entire  debt,  and  this  was  known  to  the 
creditor.  (Pooley  v.  Harradine,  7  El.  &  BL,  431;  Oriental 
Financial  Corporation  v.  Overend,  Gurney  &  Co.,  L.  R.,  7  Ch. 
App.,  142;  Millerd  v.  Thorn,  56  N.»T.,  402;  Colgrove  v.  Tallman, 
67  id.,  95.) 

We  think  it  must  be  held,  upon  the  authorities,  that  the  rights 
of  the  parties  in  this  case  are  to  be  determined  by  the  rules  gov- 
erning the  relations  of  principal  and  surety,  and  that  if  the  deal- 
ings between  the  mortgagee  and  Leslie  would  have  discharged 
Davies,  if  he  had  been  originally  bound  as  surety  only,  the  action 
against  him  cannot  be  maintained.  (Halsey  v.  Reed,  9  Paige, 
supra;  Burr  v.  Beers,  24  N.  Y.  178 ;  Flower  v.  Lance,  59  id.  603.) 

That  an  agreement  by  the  creditor  with  the  principal  debtor,  ex- 
tending the  time  for  the  payment  of  the  debt,  without  the  consent 
of  the  surety,  discharges  the  latter,  is  established  by  numerous 
authorities,  and  the  court  will  not  enter  into  the  question,  what 
injury  the  surety  has  sustained.  (Rees  v.  Berrington,  2  Ves.  Jr., 
540;  Rathbone  v.  Warren,  10  J.  R.,  587;  Miller  v.  McCan,  7 
Paige  452.)  The  plaintiff,  in  her  complaint  in  this  case,  sets 
forth  facts  which  justify  a  judgment  of  foreclosure ;  but  she  also 
demands  a  judgment  for  any  deficiency  against  the  defendant 
Davies.  The  defendant  Davies  interposed  a  general  demurrer 
to  the  complaint.  The  complaint  avers  the  making  of  the  bond 
and  mortgage  By  Davies,  its  assignment  to  the  plaintiff,  the  con- 
veyance by  Davies  to  Leslie  in  November,  1871,  of  the  equity  of 
redemption,  subject  to  the  mortgage,  and  his  agreement  to  pay 


CALVO    v.   DAVIES.  289 

the  same,  and  the  amount  due  and  unpaid  thereon.  If  the  plain- 
tiff had  stopped  here  a  cause  of  action  against  the  defendant 
Davies  would  appear  in  the  complaint;  but  she  further  alleges 
that  in  November,  1872,  by  an  agreement  made  by  the  plaintiff 
with  the  defendant  Leslie,  the  time  for  the  payment  of  the  debt 
was  extended  from  March  8,  1872,  to  October  15,  1872,  ("with  1 1 
the  express  understanding  that  the  bond  and  mortgage  should 
remain  in  every  other  respect  unaffected  by  the  agreement. ' '  J 

The  agreement,  if  construed  as  an  absolute  agreement  for  the 
extension  of  the  time  of  payment  of  the  mortgage,  prima  facie 
operated  to  discharge  Davies  from  liability  on  his  bond.  It  was 
valid  and  binding  between  the  parties,  and  the  mortgage  could 
not  be  enforced  during  the  tune  covered  by  the  agreement,  either 
by  the  plaintiff  or  by  Davies.  Davies,  on  paying  the  debt,  would 
be  entitled  to  be  subrogated  to  the  security,  but  he  would  stand 
in  the  place  of  the  creditor,  and  would  take  the  mortgage  subject 
to  the  agreement.  (D,ucker  v.  Eapp,  67  N.  Y.,  471;  Bangs  v. 
Strong,  10  Paige  11.)  The  learned  counsel  for  the  plaintiff 
contends  that  the  agreement  as  alleged  reserves  the  right  of  the 
creditor  against  Davies.  "When  in  an  agreement  between  a  creditor 
and  the  principal  debtor  extending  the  time  of  payment,  the 
remedies  against  the  surety  are  reserved,  the  agreement  does  not 
operate  as  an  absolute,  but  only  as  a  qualified  and  conditional 
suspension  of  the  right  of  action.  The  stipulation  in  that  case  is 
treated  in  effect  as  if  it  was  made  in  express  terms,  subject  to  the 
consent  of  the  surety,  and  the  surety  is  not  thereby  discharged. 
(Story's  Eq.  Jur.  §  326;  Bangs  v.  Strong,  10  Paige  18;  Kearsley 
v.  Cole,  16  M.  &  W.  128;  Oriental  Financial  Corporation  v. 
Overend,  Gurney  &  Co.,  7  H.  of  L.  Gas.,  348 ;  Morgan  v.  Smith, 
70  N.  Y.  537. )  But  we  are  of  opinion  that  the  agreement  alleged 
does  not  bring  the  case  within  the  principle  of  these  decisions. 

The  "understanding"  that  the  mortgage  should  in  all  other 
respects  remain  unaffected  by  the  agreement,  except  as  to  the 
time  of  payment,  emphasizes  the  one  purpose  of  the  agreement, 
viz.,  to  extend  the  time  of  payment.  The  other  stipulations  in  the 
mortgage  were  to  remain  in  force  as  if  the  agreement  extending 
the  time  had  not  been  made.  It  would  be  a  forced  and  unnatural 
construction  to  hold  that  the  parties  designed  to  reserve  to  the 
creditors  a  right  to  proceed  at  once  against  Davies,  which  would 
enable  the  plaintiff  to  defeat  the  sole  purpose  of  the  agreement. 
The  court  in  Claggett  v.  Salmon  (5  Gill.  &  Jo.,  314)  affirmed  the 

19 


290  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

decree  of  the  chancellor,  who  held  that  the  extension  relied  upon 
in  that  case  was  consistent  with  the  obligation  entered  into  by 
the  sureties,  and  the  agreement  expressly  provided  that  it  should 
not  interfere  with  or  invalidate  the  liability  of  the  sureties  on 
the  mortgage  executed  by  them. 

The  further  point  is  taken  by  the  plaintiff  that  the  averment 
of  the  agreement  of  extension  may  be  rejected,  leaving  it  for  the 
defendant  to  bring  the  agreement  to  the  notice  of  the  court  by 
answer.  But  we  think  the  whole  complaint  is  to  be  considered 
in  determining  whether  it  states  a  cause  of  action,  as  well  the 
allegations  which  tend  to  discharge  the  defendant  Davies,  as  those 
which  tend  to  charge  him. 

These  views  lead  to  an  affirmance  of  the  judgment. 

All  concur,  except  MILLER,  J.,  absent. 

Judgment  affirmed. 


GEORGE  v.  ANDREWS.     1882. 
60  Md.  26]-  45  Am.  Rep.  706.  •? 

Injunction.  The  opinion  states  the  case.  The  injunction  was 
granted  below. 

IRVING,  J.  The  questions  in  this  case  arise  upon  a  bill  for  in- 
junction to  stay  certain  proceedings  at  law.  The  court  below 
granted  the  injunction,  and  the  plaintiff  in  the  proceedings  at 
law  appealed.  The  principal  facts  essential  to  the  determination 
of  the  controversy  are  undisputed,  and  the  rest  are  established  by 
proof.  The  principal  contention  is  respecting  the  law  applicable 
to  them. 

The  facts  are  as  follows:  On  the  31st  day  of  July,  1872,  the 
appellees  R.  Snowden  Andrews  and  Mary  Lee  Andrews,  his  wife, 
executed  a  mortgage  to  Archibald  George,  upon  certain  premises 
on  North  Calvert  street,  in  Baltimore  City,  belonging  to  Mrs. 
Andrews,  to  secure  the  sum  of  $5,000.  This  mortgage  was  after- 
ward in  December,  1872,  assigned  by  Archibald  George  to  Samuel 
K  George,  the  appellant. 

In  October,  1871,  John  S.  Meredith  executed  a  mortgage  to 
the  appellant,  upon  certain  premises  belonging  to  the  mortgagor, 
upon  North  Avenue,  in  Baltimore  City,  to  secure  the  payment 
of  $4,000. 


GEORGE    v.    ANDREWS.  291 

On  November  "4, 1872,  John  S.  Meredith  and  Andrews  and  wife 
exchanged  properties,  and  Meredith  conveyed  the  North  avenue 
property  to  Mrs.  Andrews  subject  to  the  mortgage  from  him  to 
George;  and  Andrews  and  wife  conveyed  the  North  Calvert 
street  property  to  Meredith  subject  to  the  mortgage  from  them 
to  Archibald  George,  and  which  was  the  following  month  assigned 
to  the  appellant.  In  this  exchange  Meredith  assumed  and  agreed 
to  pay  the  mortgage  debt  upon  the  North  Calvert  street  property, 
and  Andrews  and  wife  agreed  to  pay  the  mortgage  debt  of 
Meredith  on  the  North  avenue  property.  In  addition  to  this 
undertaking  on  the  part  of  Andrews  and  wife,  they  agreed  to 
pay  Meredith  $3,500  "boot"  for  difference  in  value  in  the  ex- 
changed properties;  and  to  secure  that  sum  Andrews  and  wife 
executed  to  Meredith  a  mortgage  for  $3,500,  payable  in  three 
years  from  date. 

After  this  exchange,  the  interest  notes  on  the  Calvert  street 
mortgage  debt  were  given  by  Meredith  to  Samuel  K.  George, 
the  appellant;  and  the  interest  notes  upon  the  mortgage  on  the 
North  avenue  property  were  given  by  Andrews  and  wife  to 
the  appellant  who  collected  the  same,  generally  through  his 
bank.     When  Meredith's  mortgage  on  North  avenue  property 
fell  due,  Andrews  and  wife  secured  indulgence  for  a  while  and 
then  paid  it  off,  taking  a  release  under  seal  dated  19th  October, 
1875.     When  the  $3,500  mortgage  to  Meredith,  on  same  prop- 
erty, from  Andrews  and  wife  fell  due  in  July,  1875,  it  was 
extended  for  one  year  and  then  paid  off.     The  appellant  collected 
the  interest,  from  Meredith,  on  the  Calvert  street  mortgage  until 
July,  1875,  when  the  same  became  due.     Then  at  the  request 
of  Meredith,  and  without  consultation  with  Andrews  and  wife 
and  entirely  without  their  knowledge,  for  a  bonus  of  $150  he 
extended  the  period  for  payment  of  that  mortgage  by  Meredith 
for  three  years;  taking  interest  notes  from  Meredith  on  the 
mortgage  debt  for  that  period  and  marking  the  principal  note 
of  Andrews  and  wife  renewed  for  three  years.     When  it  again 
fell  due,  at  Meredith's  request  and  without  the  knowledge  of 
appellees  of  this  or  former  extension,  it  was  again  extended  for 
a  consideration  of  $50  for  one  year.     This  mortgage,  under  the 
extension  agreements,  became  payable  in  July,  1879.     Default 
then  having  been  made,  proceedings  to  foreclose  were  instituted, 
a  decree  was  obtained,  and  the  property  sold.     After  paying 
expenses  the  proceeds  of  sale  did  not  pay  the  mortgage  debt. 


292  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

About  $1,500  remained  unsatisfied.  To  recover  this  deficiency 
a  suit  was  instituted  by  the  -appellant  against  the  appellee,  upon 
the  covenant  in  the  mortgage  given  to  Archibald  George,  which 
was  assigned  to  the  appellant  as  hereinbefore  stated.  This  was 
an  instrument  under  seal  and  a  bill  in  equity  was  necessary  to 
secure  to  appellees  the  benefit  of  the  equitable  defense,  supposed 
to  result  from  the  character  of  the  dealings  between  the  appellant 
and  John  S.  Meredith,  with  respect  to  the  mortgaged  property 
on  Calvert  street. 

In  addition  to  the  facts  already  stated,  the  bill  charged  that 
the  appellant  had  full  knowledge  of  the  exchange  of  property 
made  by  the  appellees  and  John  S.  Meredith,  and  of  the  under- 
taking of  each,  in  that  exchange,  to  pay  the  debt  of  the  other 
to  the  appellant,  resting  on  the  property  respectively  transferred ; 
and  that  he  assented  thereto.  It  also  charges  that  the  action 
of  the  appellant  in  extending  the  time  for  Meredith  to  pay  the 
mortgage  debt  on  the  Calvert  street  house,  first  for  three  years 
and  then  for  one  year,  was  entirely  without  the  knowledge  or 
consent  of  the  appellees,  and  without  consultation  with  them 
or  either  of  them;  and  that  both  the  appellant  and  Meredith 
regarded  the  latter  as  the  sole  debtor  for  the  $5,000  resting  on 
the  Calvert  street  property,  and  that  appellant  and  appellees 
acted  during  that  whole  period  in  their  transactions  on  that 
understanding.  It  also  charges  that  acting  on  that  understand- 
ing, the  appellees  paid  off  the  whole  of  the  $3,500  debt,  created 
in  the  exchange  and  secured  by  mortgage  on  North  avenue  prop- 
erty to  Meredith;  whereas  if  it  had  been  intimated  that  they 
were  in  any  wise  to  be  held  responsible  for  the  debt  on  the 
Calvert  street  property,  a  sufficient  amount  of  the  $3,500  debt 
to  Meredith  could  have  been  kept  back  to  meet  the  ascertained 
deficiency.  The  complainants  then  charge  that  they  were  re- 
leased by  the  appellant  George  giving  direct  assent  to  their 
recited  agreement  with  Meredith;  but  if  they  were  not,  still  the 
appellant  after  the  exchange  could  only  look  to  them  as  securities 
for  Meredith,  and  that  the  giving  time  to  Meredith  without  their 
consent,  knowledge  or  acquiescence  operated  to  release  them. 
Injunction  was  accordingly  prayed. 

The  appellant  by  his  answer  in  effect  admitted  the  several 
allegations  of  the  bill  except  the  allegation  of  knowledge  on  his 
part  of  the  exchange  between  the  parties  alleged  in  the  arrange- 
ment by  which  each  of  his  debtors  was  to  become  answerable  for 


GEORGE    v.    ANDREWS.  293 

the  other's  debt  to  him,  which  he  denies,  and  also  denies  that  he 
ever  assented  to  the  arrangement  or  released  or  intended  to  re- 
lease the  appellees  from  liability  for  the  debt  on  the  Calvert 
street  property.  He  avers  that  the  transactions  with  Meredith 
for  extension  of  time  were  managed  entirely  by  Mr.  Guest  as 
his  agent,  and  he  denies  he  ever  received  any  bonus  for  the  same, 
or  ever  knew  of  it.  He  also  avers  that  he  has  brought  the  suit 
for  the  benefit  of  John  C.  George,  his  cestui  que  trust. 

The  case  having  been  brought  to  hearing  upon  the  proofs  in 
the  cause  before  the  Circuit  Court  for  Baltimore  City,  that  court 
made  the  injunction  against  prosecuting  the  suit  at  law  per- 
petual. 

In  his  opinion  the  learned  judge  placing  his  decree  upon  the 
equities  resulting  to  the  appellees  from  the  conduct  of  the  appel- 
lant in  extending  the  time  for  Meredith  on  the  Calvert  street 
property,  most  forcibly  and  tersely  says :  "It  must  be  conceded 
that  when  Andrews  and  wife  sold  his  property  to  Meredith, 
subject  to  the  mortgage  to  George,  and  left  their  notes  for  the 
principal  and  interest  in  the  possession  of  George,  they  had  a 
right  to  have  the  property  immediately  sold  upon  any  default 
by  Meredith  in  the  payment  of  either  principal  or  interest. 
This  right  they  could  exercise  by  a  demand  upon  George  to  pur- 
sue his  remedy  against  the  property;  a  demand  which  he  could 
not  disregard.  When  therefore  by  a  binding  agreement  between 
himself  and  Meredith  he  deprived  himself  of  meeting  the  demand 
of  Andrews  and  wife,  he  released  them  from  a  liability  which 
he  might  have  averted  by  a  compliance  with  such  demand. 
This  consequence  could  only  have  been  avoided  by  a  distinct 
agreement  with  Meredith,  that  the  suspension  of  the  remedy 
against  the  property  was  not  to  be  operative  if  Andrews  and 
wife  should  require  the  property  to  be  sold  for  their  protection 
on  Meredith's  default.  But  I  find  in  the  evidence  no  record  of 
such  an  agreement." 

We  find  no  error  in  this  ruling  nor  in  the  reason  assigned  for 
it.  On  the  contrary,  we  think  it  is  fully  sustained  by  the  proof 
in  the  cause,  and  justified  by  the  most  approved  text-book 
authority  and  judicial  decision.  ******** 

In  1  Jones  on  Mortgages,  §§740-741,  the  doctrine  is  most 
clearly  stated,  that  generally  one  purchasing  land  subject  to 
mortgage  not  only  purchases  the  equity  of  redemption,  but  pur- 
chases the  whole  estate,  and  assumes  the  payment  of  the  mortgage 


294  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

as  part  of  the  purchase-money.  Generally  an  express  agreement 
is  made  to  that  effect  (as  was  done  here),  and  the  deed  drawn 
subject  to  the  payment  of  the  mortgage.  In  such  case  as  between 
the  parties  the  purchaser  becomes  primarily  liable  for  the  debt 
•and  the  mortgagor  only  security;  "and  as  between  them  the 
mortgaged  property  becomes  the  primary  fund  for  the  payment 
of  the  debt. ' '  The  same  author  says  the  mortgagee  may  by  his 
dealings  with  the  purchaser  and  mortgagor  recognize  the  pur- 
chaser as  principal  and  the  mortgagor  as  only  security  toward 
himself.  It  is  also  stated,  that  "any  material  alteration  of  the 
mortgage  contract  will  discharge  the  mortgagor."  It  is  still 
further  stated  in  section  742,  thus:  "A  purchaser  having  as- 
sumed the  payment  of  an  existing  mortgage  and  thereby  become 
the  principal  debtor,  and  the  mortgagor  a  surety  of  the  debt 
merely,  an  extension  of  the  time  of  payment  of  the  mortgage 
by  an  agreement  between  the  holder  of  it  and  the  purchaser, 
without  the  concurrence  of  the  mortgagor,  discharges  Lim  from 
all  liability  upon  it. ' ' 

The  doctrine  as  thus  stated  comports,  we  think,  with  true 
principles  of  equity  and  fair  dealing  to  which  parties  ought 
always  to  be  held.  The  question  was  presented  in  Calvo  v. 
Davies,  73  N.  Y.  211 ;  s.  c.,  29  Am.  Rep.  130,  and  was  unequivo- 
cally decided  in  accordance  with  the  rule  as  we  have  extracted 
it  from  Jones  on  Mortgages.  In  that  case  the  court  said,  that 
in  such  a  case  as  this  we  are  considering,  it  must  be  held  on  the 
authorities  that  the  rights  of  parties  must  be  determined  by  the 
rules  governing  the  relation  of  principal  and  surety.  We  find 
that  decision  to  have  been  frequently  followed  in  New  York, 
and  have  discovered  no  case  to  the  contrary  in  this  country, 
except  Corbett  v.  Waterman,  11  Iowa  86.  The  weight  of  authority 
is  strongly  in  favor  of  the  rule  laid  down  in  Calvo  v.  Davies, 
which  we  think  adopts  the  truly  equitable  rule.  It  is  very 
clear  that  after  this  arrangement  between  the  appellant  and 
Meredith,  if  Andrews  and  wife,  who  were  the  original  debtors, 
had  tendered  the  amount  of  the  mortgage  debt  to  the  appellant 
and  demanded  an  immediate  assignment  to  them  that  they  might 
enforce  immediate  payment,  Meredith  could  not  have  complied, 
so  as  to  enable  them  to  proceed;  nor  could  he  have  proceeded 
at  once  upon  the  demand  of  the  appellees  as  the  sureties  of 
Meredith  under  the  theory  of  the  law  as  stated,  for  he  had  bound 
himself  to  wait  for  a  definite  period.  It  may  be  possible  that 


RAWSON    v.    TAYLOR.  295 

during  that  period  such  depreciation  might  take  place  as  to 
create  the  deficiency. 

The  appellant  complains  that  no  injury  in  fact  has  been  shown. 
The  authority  we  have  cited  says  that  no  inquiry  will  be  made 
into  that.  The  reason  is  that  the  law  presumes  a  man  to  have 
been  injured  by  such  dealing  to  his  possible,  if  not  probable, 
prejudice.  This  is  the  doctrine  of  Claggett  v.  Salmon,  5  G.  &  J. 
352,  in  which  Judge  STEPHEN  says:  "It  is  upon  the  principle 
that  the  contract  is  changed  or  varied  to  his  prejudice,  and  with- 
out his  consent,  that  the  surety  is  discharged.  It  is  because  the 
creditor  has  disabled  himself  from  fulfilling  the  duties  and  obli- 
gations which  he  owes  to  the  surety,  that  he  is  released  from 
his  responsibility."  In  that  case  there  was  an  express  reserva- 
tion of  rights  as  against  the  surety,  which  under  the  circum- 
stances of  that  case  was  upheld.  But  in  this  case  there  was  no 
reservation  of  rights  as  against  the  surety,  nor  of  right  to  pro- 
ceed at  the  sureties'  request,  to  throw  any  doubt  upon  the  pro- 
priety of  applying  the  general  rule  to  this  case.  The  doctrine 
that  any  dealing  with  the  principal  debtor  whereby  the  contract 
is  varied  or  changed  operates  to  release  the  surety  is  also  fully 
maintained  and  applied  in  Mayhew  v.  Boyd,  5  Md.  102 ;  Yates 
v.  Donaldson,  id.  389,  and  Oberndorff  v.  Union  Bank  of  Balti- 
more, 31  id.  126.  ************* 

It  follows  from  what  we  have  said,  that  the  decree  of  the 
Circuit  Court  must  be  affirmed. 

Decree  affirmed. 


1.  It  has  been  held  in  som,e  states  that  joint  obligors  cannot  by 
agreement  between  themselves,  and  without  the  consent  of 
their  creditors,  so  change  their  relation  to  the  debt  as  to  change 
the  creditor's  rights. 

RAWSON  v.  TAYLOR.    1876. 
30  Ohio  State  389;  27  Am.  Rep.  46d. 

JOHNSON,  J.  The  note  sued  on  was  the  joint  liability  of  all 
the  partners  in  the  firm  of  Taylor,  Griswold  &  Co. 

Taylor  and  Finger,  as  well  as  Griswold,  were  principal  debtors. 

When  the  note  was  executed  and  delivered  to  Mrs.  Rawson, 
for  a  valuable  consideration,  the  liability  thereon  of  each  partner 


296  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

became  fixed.  Their  relations  to  that  contract,  and  their  liabili- 
ties thereon,  could  by  no  act -between  themselves  be  changed. 

After  this  note  was  given,  two  of  the  partners,  Taylor  and 
Finger,  retired  from  the  firm,  and  a  new  one  was  formed,  includ- 
ing Griswold,  their  former  partner,  which  obligated  itself  to 
the  retiring  partners  to  pay  all  debts,  and  save  them  harmless. 

Of  this  arrangement,  it  is  claimed  that  Mrs.  Rawson  had  notice. 
The  evidence  tends  to  show  constructive  notice  to  her  of  the 
formation  of  the  new  partnership  to  succeed  Taylor,  Griswold  & 
Co.,  and  subsequent  dealings  by  her  with  the  new  firm.  Whether 
she  ever  in  fact  knew  of  this  arrangement,  by  which  the  new  firm 
was  to  pay  the  debts  of  the  old,  does  not  appear,  but,  conceding 
that  she  did,  the  question  presented  by  the  charge  of  the  court 
is,  as  to  the  effect  of  such  knowledge  on  her  rights  on  the  note. 

The  charge  was :  "If  she  did  have  notice,  then  she  was,  after 
that  knowledge,  bound  to  treat  them  as  sureties,  and  they  were 
entitled  to  all  the  protection  that  sureties  would  be  entitled  to, 
as  if  the  names  of  Taylor  and  Finger  had  been  attached  as 
sureties  when  the  note  was  executed." 

It  is  not  claimed  that  Mrs.  Rawson  assented  to  this  new  ar- 
rangement, or  by  any  valid  contract,  express  or  implied,  agreed 
to  modify  or  change  the  relations  of  these  joint  obligors  to  her 
upon  the  note,  but  simply,  as  between  themselves,  by  the  new 
arrangement,  Taylor  and  Finger  became  sureties  of  their  co- 
partner, Griswold,  of  which  fact  Mrs.  Rawson  had  notice.  It 
is  admitted  that  so  long  as  she  was  not  informed  of  this  arrange- 
ment her  rights  and  duties  remained  as  fixed  when  the  note  was 
given;  but  it  is  claimed  that  when  such  notice  was  given,  then 
Taylor  and  Finger  were  entitled  to  the  same  rights  and  protec- 
tion as  if  they  had  been  originally  sureties. 

In  substance,  the  charge  of  the  court  lays  down  the  law  to  be, 
that  the  liability  of  principals  on  an  obligation  may  be  converted 
into  a  liability  of  suretyship  by  the  acts  of  the  obligors,  without 
the  assent  of  the  obligee,  by  giving  notice  of  such  new  arrange- 
ment. 

In  Thurston  &  Hays  v.  Ludwig,  6  Ohio  St.  1,  it  was  held  that 
in  order  to  change  or  vary  the  terms  of  a  written  contract,  there 
must  be  a  new  contract  to  that  effect  between  the  parties,  based 
on  some  new  consideration,  or  such  new  contract  must  have  been 
so  far  executed  or  acted  upon  that  a  refusal  to  carry  it  out 
would  operate  as  a  fraud. 


RAWSON    v.    TAYLOR.  297 

Such  is  the  general  rule  governing  all  contracts.  In  its  appli- 
cation to  cases  like  the  one  at  bar,  STORY  says:  "It  frequently 
happens  that  upon  the  retirement  of  one  partner,  the  remaining 
partners  undertake  to  pay  the  debts  and  to  secure  the  credits 
of  the  firm.  This  is  a  mere  matter  of  private  arrangement  and 
agreement  between  the  partners,  and  can  in  no  respect  be  ad- 
mitted to  vary  the  rights  of  existing  creditors  of  the  firm." 
Story  on  Partnership,  sec.  154. 

If  the  creditor  assents  to  such  arrangement  after  it  becomes 
known  to  him,  ' '  and  by  his  subsequent  act  or  conduct,  or  binding 
contract,  he  agrees  to  consider  the  remaining  partners  as  his 
exclusive  debtors,  he  may  lose  all  right  and  claim  against  the 
retiring  partner. ' ' 

The  precise  question  at  bar  was  considered  at  great  length  in 
Maingay  v.  Lewis,  Irish  R.  Com.  Law,  495  (1869). 

To  an  action  on  the  money  counts,  the  defendant  pleaded  that 
the  cause  of  action  accrued  against  him  and  one  "W.  and  one  S. 
as  partners ;  that  afterward  the  firm  was  dissolved  by  a  memoran- 
dum, of  which  plaintiff  had  due  notice,  by  which  W.  agreed  to 
pay  all  debts  of  the  firm  and  indemnify  his  copartners  from  all 
claims,  by  which  he  became  a  surety  only,  of  which  plaintiff  had 
notice,  and  after  such  notice  took  a  bill  of  exchange  at  three 
months  from  W.  alone  for  the  amount,  and  thereby  gave  time 
to  W.,  whereby  defendant  was  discharged  from  liability.  It  was 
held  that  this  plea  was  bad,  and  did  not  constitute  a  defense 
either  at  law  or  in  equity,  WHITESIDE,  C.  J.,  saying:  "It  is  clear 
that  no  arrangement  among  joint  debtors  could  prejudice  the 
rights  of  their  creditors."  Again:  "Another  averment  is  that 
the  plaintiffs  'had  notice  of  this  arrangement.'  Well,  I  do  not 
see  how  the  men  giving  notice  to  the  plaintiff  of  an  arrangement 
by  which  they  can  not  be  affected,  is  to  prejudice  their  rights. ' ' 

In  that  opinion  the  distinction  is  clearly  drawn  between  a  case 
where  the  relation  of  principal  and  surety  existed  inter  se  at  the 
time  the  obligation  was  entered  into,  of  which  the  creditor  had 
knowledge,  and  a  case  of  joint  principals  inter  se  at  the  date  of 
the  obligation,  and  a  subsequent  agreement  between  the  joint 
debtors,  by  which,  as  between  themselves,  one  becomes  a  surety 
of  the  other,  of  which  subsequent  arrangement,  the  creditor  had 
knowledge. 

It  is  of  the  first  importance  to  keep  in  mind  the  distinction,  as 
it  furnishes  the  key  to  harmonize  many  apparently  conflicting 


298  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

decisions.  In  the  former  class  of  cases,  the  relation  of  suretyship 
exists  at  the  very  inception  of  the  contract.  The  obligee  having 
knowledge  of  that  relation  before  he  accepts  the  contract,  takes 
it  subject  to  all  the  rights  and  equities  of  such  sureties  inter  se 
not  inconsistent  with  the  terms  of  the  contract. 

On  the  other  hand,  where  the  obligors  are  in  fact  joint  debtors, 
he  accepts  them  as  such,  and  no  subsequent  arrangements  between 
the  joint  debtors  alone  can  change  that  relation.  Bedford  v. 
Dealdn,  2  B.  &  Aid.  210;  Evans  v.  Drummond,  4  Esp.  89 ;  Pooley 
v.  Harradine,  7  E.  &  B.  431;  Butler  et  al.  v.  Berkey,  13  Ohio 
St.  523;  Parsons  on  Part.  421-425,  ch.  13;  Manley  v.  Boycott, 
75  E.  C.  L.  45. 

"We  may  concede  that  such  an  agreement  between  remaining 
/  and  retiring  partners,  with  notice  to  a  partnership  creditor, 
would  impose  upon  him  the  duty  of  acting  in  good  faith  and 
with  reasonable  diligence  in  the  management  of  securities  placed 
in  his  hands  for  the  payment  of  his  claim,  in  the  preservation  of 
liens,  and  in  the  application  of  payments  made. 

A  failure  by  the  creditor,  after  such  notice,  to  perform  these 
duties,  resulting  in  damages  to  the  retiring  partner,  might  well 
be  regarded  in  a  court  of  equity  as  cause  to  release  him. 

In  such  case  the  terms  of  the  contract  have  not  been  changed, 
but  the  fact  that  new  relations  had  arisen  between  the  partners, 
by  which  one  assumes,  as  between  them,  the  burdens  of  all,  might 
well  call  upon  the  creditor  to  act  in  such  way  as  not  to  injure 
the  retiring  partners.  Eq.  Lead.  Cases,  pt.  11,  p.  1902. 

In  such  cases  it  has  been  held,  that  if  the  creditor  should  give 
up  securities  in  his  hands,  and  take  those  of  the  new  firm,  or 
give  long  credit  for  additional  interest  or  new  security,  or  re- 
lease a  levy  made,  without  the  consent  of  the  retiring  partner, 
then  in  all  such  cases  the  retiring  partner  will  be  discharged. 
Story  on  Part.,  sec.  158  et  seq.;  Parsons  on  Part.  421  et  seq.; 
Colyer  on  Part.  554-570 ;  Harris  v.  Lindsay,  4  Wash.  C.  C.  271 ; 
Bedford  v.  Deakin,  2  Barn.  &  Aid.  210. 

An  examination  of  the  cases  in  support  of  the  doctrine  of  the 
text-books  fails  to  support  the  charge  of  the  court  below.  Upon 
both  reason  and  authority,  therefore,  we  conclude  that  as  Mrs. 
Rawson  was  not  a  party  to  this  new  contract  between  the  part- 
ners, by  which  the  new  firm  assumed  the  debts  of  the  old,  and 
had  never  assented  thereto  or  agreed  to  be  bound  thereby,  her 


RAWSON    v.    TAYLOR.  299 

rights  on  the  promissory  note,  to  regard  all  as  principals,  have 
not  been  altered  or  impaired. 

These  principles  are  aptly  illustrated  by  the  case  before  us. 

By  the  several  mortgages  the  claim  of  Mrs.  Bawson  was  amply 
provided  for. 

Dudley,  as  the  agent  of  the  mortgagees,  had  sold  sufficient 
property  to  pay  them  in  full,  and  held  the  money  the  proceeds  of 
such  property,  applicable  to  such  payment.  So  much  of  this 
money  as  equalled  the  claim  of  Mrs.  Rawson  belonged  to  her. 
Had  she,  without  the  consent  of  these  retiring  partners,  and  with 
full  knowledge  of  her  rights,  surrendered  it  back  to  E.  R.  G.  & 
Co.,  after  notice  that  they  were  the  principal  debtors,  and  thus 
have  thrown  the  burden  on  these  defendants,  equity  might  well 
treat  them  as  discharged. 

In  this  case,  it  is  not  clear  that  Mrs.  Rawson  had  full  knowledge 
of  all  the  facts,  and  it  is  clear  that  Taylor  and  Finger  consented 
to  the  surrender  of  the  money  then  in  Dudley's  hands.  Had  it 
been  distributed,  the  debt  would  have  been  satisfied.  The  reason 
why  it  was  not  so  applied  by  Dudley  is  disclosed  in  the  bill  of 
exceptions. 

F.  R.  Griswold  &  Co.  had  succeeded  in  compromising  with'their 
general  creditors,  and  had  obtained  their  consent  to  a  return  to 
the  firm  of  the  unsold  goods  then  in  the  hands  of  "Wyman,  the 
assignee. 

They  also  desired  to  get  possession  of  the  money  in  the  hands 
of  Dudley.  To  do  this,  they  must  have  the  assent  of  all  the  mort- 
gagees who  were  entitled  to  receive  their  proportions  of  that 
fund.  Taylor  and  Finger  were  among  the  mortgagees  whose 
assent  was  necessary. 

To  secure  such  assent,  a  paper  was  drawn  up  and  signed  by 
all  the  parties  interested  in  the  funds.  Taylor  and  Finger  as- 
sented. They  are  first  to  sign  this  paper,  thereby  recommending 
the  others  to  do  the  same.  Mrs.  Rawson,  seeing  their  names  to 
it,  was  influenced  to  sign  among  the  last.  Taylor  and  Finger 
took  good  care,  however,  to  insist  on  a  private  arrangement,  in 
fraud  of  the  rights  of  the  other  creditors,  by  which  they  received 
their  share  of  these  moneys,  unknown  to  Mrs.  Rawson. 

We  think  the  court  erred  in  saying  that  their  signatures  to 
this  paper  operated  only  as  to  their  individual  interest  in  the 
fund. 


300  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

The  avowed  object  of  this  paper  was  "to  promote  a  settlement 
of  the  affairs  and  business  of  the  firm  of  E.  R.  Griswold  &  Co." 

All  had  to  sign  to  make  the  scheme  operative.  The  object  was 
to  reinstate  the  embarrassed  firm  in  business. 

It  may  be  that  if  part  only  had  signed,  the  trustee  might  have 
paid  the  others  their  share,  and  returned  back  to  E.  R.  G.  &  Co. 
the  shares  of  the  assenting  parties,  yet  it  is  quite  evident  that 
the  paper,  which  all  in  fact  signed,  was  an  express  assent  of 
each ;  that  Dudley  was  authorized  to  return  to  the  firm,  not  only 
his  own  share  of  the  money,  but  also  the  shares  of  the  other 
mortgagees.  In  short,  Taylor  and  Finger  assented  to  this  ar- 
rangement as  an  entirety.  They  consented  that  Dudley  should, 
instead  of  paying  the  debt  to  Mrs.  Rawson,  return  the  money  to 
E.  R.  Griswold  &  Co.,  to  enable  them  to  resume  business. 

Taylor  and  Finger,  by  signing  this  paper,  consented,  not  only 
that  their  share  of  the  money  should  be  returned  to  E.  R.  G.  & 
Co.,  but  also  consented  that  Mrs.  Rawson  should  do  the  same. 
They  said  to  her :  We  are  willing,  in  order  to  promote  a  settle- 
ment by  our  principals,  and  enable  them  to  start  again  in  busi- 
ness, that  you  shall  still  hold  our  note  unpaid,  and  return  to 
them  the  money  in  Dudley's  hands  applicable  to  its  payment. 
In  Woodcock  v.  Oxford  and  Worcester  Railway  Co.,  1  Drew 
521,  D.  and  S.  were  sureties  of  A.,  B.,  and  C.  A.  and  B.  retired, 
and  F.  was  substituted.  Subsequently,  disputes  arose  between 
the  new  firm  of  C.  &  F.  and  the  company  with  which  the  old 
firm  had  contracted,  on  which  contract  D.  &  S.  were  the  sureties. 

The  sureties  were  not  parties  to  the  transactions  growing  out 
of  these  disputes,  but  acted  as  the  solicitors  of  the  new  firm,  and 
prepared  many  of  the  documents  by  which  the  original  contract 
was  varied.  It  was  held  that  the  sureties  were  not  discharged 
by  reason  of  these  changes,  because,  with  full  knowledge  of  the 
facts,  they  assisted  as  solicitors  in  carrying  into  effect  the  ar- 
rangements of  which  they  complain.  These  defendants,  having 
signed  this  paper,  thereby  consented  and  recommended  that  all 
the  other  mortgagees  do  the  same.  This  consent  bars  their 
present  defense. 

III.  It  is  also  claimed  by  the  defendant  that  the  receipt  of 
interest  on  the  15th  of  November,  1867,  to  the  17th  of  the  same 
month  was  such  a  giving  of  time  as  discharged  the  defendants. 

The  authorities  cited  and  the  conclusions  reached  on  the  first 
point  disposes  of  this. 


WHITE   v.    BOONE.  301 

As  these  defendants  were  still  jointly  liable  on  the  note  as 
partners,  the  mere  payment  of  interest  by  one  jointly  liable  with 
them  for  a  time  in  advance,  would  not  discharge  them,  even  if 
we  concede  that  such  payment,  by  operation  of  law,  extended 
the  time  on  the  note. 

Judgment  of  common  pleas  reversed  and  cause  remanded. 


WHITE  v.  BOONE.    1888. 
71  Tex.  712;   12  8.  W.  Rep.  51. 

Commissioners'  decision.  Appeal  from  district  court,  Mon- 
tague county;  F.  E.  Finer,  Judge. 

Action  by  Mary  A.  Boone  and  others  against  White,  Barefoot 
&  Bryant,  as  co-partners,  for  the  balance  due  for  rent  of  cer- 
tain land  leased  by  them  for  three  years  for  pasturage.  Judg- 
ment was  rendered  for  plaintiffs,  and  defendants  appeal. 

COLLARD,  J.  The  questions  in  this  case  arise  upon  the  fol- 
lowing state  of  facts:  Mrs.  Mary  A.  Boone,  owning  a  one-half 
undivided  interest  in  pasture  lands  in  Clay  county,  leased  the 
same  on  the  16th  of  April,  1883,  to  White,  Barefoot  &  Bryant, 
partners  in  cattle  business,  at  $2,496  per  year,  for  three  years, 
one-half  of  which  was  to  be  paid  at  the  beginning  of  the  year, 
and  the  remainder  at  the  end  of  the  year.  Cash  payments  were 
made  along,  but  at  the  end  of  the  first  year  there  was  due 
$1,896.  In  July  or  August,  1883,  White  sold  out  to  the  other 
partners,  who  assumed  all  the  liabilities  of  the  business,  and  ran 
the  same  under  the  style  of  Barefoot  &  Bryant.  Barefoot  made 
all  the  negotiations  with  Mrs.  Boone,  who  was  his  relative.  At 
the  end  of  the  year  he  came  to  Mrs.  Boone,  estimated  the  amount 
then  due  for  the  first  year,  and  gave  her  the  note  of  the  new  firm 
for  the  same ;  not  having  the  money  to  pay  it.  Mrs.  Boone  was 
not  able  to  state  whether  she  knew  at  the  time  that  White  was 
out  of  the  firm,  but  the  fact  and  terms  of  dissolution  had  been 
published  in  the  papers.  At  the  time  the  note  was  given  noth- 
ing was  said  about  White;  no  agreement  was  made  as  to  him, 
and  no  release  given.  The  note  of  Barefoot  &  Bryant  was  given 
merely  for  the  balance  due  at  the  end  of  the  first  year.  She 
says  that  she  took  it  as  collateral,  but  Barefoot  testifies  that 
nothing  was  said  about  its  being  collateral.  At  the  end  of  the 


302  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

second  year  Barefoot  informed  her  that  they  could  not  keep  the 
pasture  for  the  full  term  of  the  lease,  because  they  were  not 
able  to  pay  for  it, — asked  her  to  take  it  back,  which  she  did, 
and  rented  it  to  another  person.  White  testified  that  Mrs. 
Boone  came  to  his  store  after  she  had  taken  the  pasture  back, 
and  before  the  suit  was  brought,  and  asked  him  to  tell  her  how 
she  could  get  her  money  out  of  Barefoot  &  Bryant,  and  asked 
him  to  assist  her,  and  said  nothing  about  his  paying  the  money. 
Mrs.  Boone  denied  the  fact  in  her  testimony.  In  all,  before  suit, 
there  had  been  paid  on  the  contract  $2,548.  Under  these  cir- 
cumstances, White  claims  that  the  taking  of  the  note  from  Bare- 
foot &  Bryant  changed  the  original  contract,  and  released  him 
from  all  liability  on  it.  A  retiring  partner  is  not  discharged 
from  existing  liabilities  of  the  copartnership,  nor  from  any  un- 
expired  lease  made  before  retirement.  The  fact  that  the  remain- 
ing partners  have  agreed  with  him  to  pay  the  debts  and  exon- 
erate him  from  all  liabilities  upon  a  lease  or  other  executory 
contract,  would  not  affect  the  rights  of  the  lessor.  Such  an 
agreement  would  be  binding  between  the  partners  themselves 
only,  unless  creditors  became  parties  to  the  agreement  for  a  con- 
sideration. Upon  this  subject  we  adopt  the  language  and  prin- 
ciples stated  by  Mr.  Parsons  in  his  work  on  Partnership,  page 
458,  as  follows:  "It  is  said  the  adequacy  of  consideration  can- 
not be  inquired  into.  And  if  a  creditor  of  a  firm  contracts  or 
agrees  with  a  new  firm  to  take  their  security  in  discharge  of 
the  old,  the  retiring  partner  is  discharged  from  any  liability  to 
pay  the  debt,  and  whether  such  an  agreement  has  taken  place 
is  a  question  of  fact  for  the  jury.  To  discharge  a  retiring  part- 
ner, however,  it  is  not  sufficient  to  take  a  new  security,  but 
there  must  be  an  agreement  to  discharge  him  from  the  liability 
of  the  old  firm."  See,  also,  side  page  on  417.  Id.  There  is  no 
pretense  that  Mrs.  Boone  agreed  or  made  any  contract  to  dis- 
charge White  when  she  took  the  note.  The  undisputed  evidence 
is,  there  was  nothing  said  about  it.  The  fact  that  she  subse- 
quently took  the  pasture  back  when  the  new  firm  informed  her 
they  were  unable  to  keep  it,  could  not  affect  the  case.  She  does 
not  sue  for  the  third  year's  rent.  White  was  bound  upon  the 
contract  for  the  whole  time  it  was  in  use,  and  until  it  was  sur- 
rendered to  her  by  her  consent.  The  judgment  of  the  court  was 
correct,  and  ought  to  be  affirmed. 

STAYTON,  C.  J.     Opinion  adopted  November  13,  1888. 


SHAPLEIGH   HARDWARE  CO.  v.  WELLS.  303 

SHAPLEIGH  HARDWARE  CO.  v.  WELLS.    1896. 
90  Texas  110;  59  Am.  St.  Eep.  783;  37  8.  W.  Eep.  411. 

BROWN,  J.  The  court  of  civil  appeals  for  the  second  su- 
preme judicial  district  has  certified  to  this  court  the  following 
statement  and  question: 

"Appellant  sued  appellees  upon  a  debt  for  merchandise  con- 
tracted by  them  while  engaged  in  a  mercantile  business  under 
the  firm  name  of  Wells  &  Chestnut.  While  so  indebted  the  firm 
was  dissolved  by  mutual  consent,  Chestnut  purchasing  the  in- 
terest of  Wells  and  assuming  the  liabilities  of  the  concern.  There- 
upon Wells  notified  appellant  of  this  fact,  and  requested  that 
he  be  released,  and,  upon  this  being  refused,  requested,  as 
claimed  by  him,  that  suit  be  brought  against  Chestnut  as  pro- 
vided in  articles  3660  and  3661  of  Sayles'  Statutes,  but  this  was 
not  done. 

"The  material  question  in  the  case,  which  we  deem  it  proper 
to  certify  to  your  honors  for  decision,  is  this:  Can  one  of  two 
or  more  principal  debtors,  by  agreement  among  themselves  with- 
out the  consent  of  the  creditor,  so  change  the  character  of  his 
liability  to  such  creditor  from  principal  to  surety  as  to  make 
available  to  him  the  provisions  of  the  articles  above  referred 
to?  Or,  in  other  words,  did  Wells,  after  notice  to  Shapleigh 
Hardware  Company  of  the  arrangement  whereby  Chestnut  was 
to  pay  the  debt,  occupy  the  relation  of  surety  thereon,  so  as  to 
entitle  him  to  the  remedy  and  rights  provided  in  the  foregoing 
articles?" 

There  is  some  conflict  of  authority  upon  the  question  pre- 
sented for  our  consideration.  We  think  that  the  weight  of  au- 
thority and  sound  reasoning  support  the  proposition  that  one  of 
two  or  more  principal  debtors  cannot,  by  agreement  with  his 
codebtor  or  debtors,  without  consent  of  the  creditor,  so  change 
the  character  of  his  liability  from  principal  to  surety  as  to 
entitle  him  from  the  creditor  to  the  treatment  and  protection  of 
a  surety  for  the  debt.  In  support  of  this  position  we  cite  the 
following  authorities:  Parsons  on  Partnership,  3d  ed.,  428;  1 
Lindley  on  Partnership,  245 ;  1  Bates  on  Partnership,  sec.  533, 
et  seq.;  Story  on  Partnership,  sec.  158;  White  v.  Boone,  71  Tex. 
712;  Shepherd  v.  May,  115  U.  S.  505;  Whittier  v.  Gould,  8 
Watts  485;  Rawson  v.  Taylor,  30  Ohio  St.  389,  27  Am.  Rep. 


304  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

464;  Wadhams  v.  Page,  1  Wash.  420;  Skinner  v.  Hitt,  32  Mo. 
App.  409 ;  Barnes  v.  Boyers,  34  W.  Va.  304 ;  Swire  v.  Redman, 
L.  R.  1  Q.  B.  Div.  536 ;  Hall  v.  Jones,  56  Ala.  493. 

As  supporting  the  contrary  doctrine  we  cite  the  following: 
Brandt  on  Suretyship  and  Guaranty,  sec.  36;  Colgrove  v.  Tall- 
man,  67  N.  Y.  95,  23  Am.  Rep.  90;  Smith  v.  Sheldon,  35  Mich. 
49,  24  Am.  Rep.  529;  Campbell  v.  Floyd,  153  Pa.  St.  84;  Wil- 
liams v.  Boyd,  75  Ind.  286 ;  Gates  v.  Hughes,  44  Wis.  332. 

In  the  case  of  White  v.  Boone,  71  Tex.  712,  cited  above,  which 
involved  very  much  the  same  state  of  facts  as  in  the  case  sub- 
mitted, Judge  COLLARD  said:  "A  retiring  partner  is  not  dis- 
charged from  existing  liabilities  of  the  copartnership  nor  for 
any  unexpired  lease  made  before  retirement.  The  fact  that  the 
remaining  partners  have  agreed  with  him  to  pay  the  debts  and 
exonerate  him  from  all  liabilities  upon  a  lease  or  other  executory 
contract  would  not  affect  the  rights  of  the  lessor.  Such  an 
agreement  would  be  binding  between  the  partners  themselves 
only,  unless  creditors  became  parties  to  the  agreement  for  a 
consideration. ' ' 

The  opinion  in  that  case,  which  was  approved  by  the  supreme 
court,  covers  every  material  point  involved  in  the  question  cer- 
tified, and  in  our  judgment  established  the  precedent  in  our 
State  in  accordance  with  the  weight  of  authority. 

If  it  were  necessary  to  adduce  reasons  in  support  of  the  posi- 
tion "taken  upon  this  question,  we  could  do  no  better  than  to 
quote  from  the  opinion  delivered  by  Judge  STONE  in  the  case 
of  Hall  v.  Jones,  56  Ala.  493,  the  following  language:  "When 
the  goods  were  consigned  by  Hall  &  Long  to  Hannon,  Brown 
&  Jones,  and  received  by  them  as  commission  merchants,  this 
constituted  a  contract  binding  on  each  of  the  partners  compos- 
ing the  latter  firm  to  account  for  the  goods  or  their  proceeds. 
Such  liability  could  not  be  canceled  by  any  act  of  the  latter  firm 
alone  or  by  any  agreement  its  different  members  might  make 
among  themselves  in  which  Hall  &  Long  did  not  concur.  It  re- 
quires the  same  mutuality  to  vary  or  modify  a  contract  as  it 
does  to  create  it  in  the  first  instance.  The  modification  is  only 
a  species  of  contract."  This  doctrine  that  a  contract  when  once 
made  cannot  be  unmade  without  consent  of  both  parties  thereto, 
is  so  evidently  sound,  just  and  correct,  that  no  argument  is  re- 
quired to  sustain  it. 

The  leading  cases  in  America  which  support  the  opposite  view 


SHAPLEIGH   HARDWARE   CO.  v.  WELLS.  305 

of  this  question  are  Colgrove  v.  Tallman,  67  N.  Y.  95,  23  Am. 
Rep.  90,  and  Smith  v.  Sheldon,  35  Mich.  49,  24  Am.  Kep.  529, 
both  hereinbefore  cited.  Both  of  these  cases  rest  upon  the 
authority  of  Oakely  v.  Pasheller,  4  Clark  &  F.  207.  In  the 
former  case  Judge  FOLGER,  of  the  supreme  court  of  New  York, 
after  stating  the  proposition  that  an  agreement  between  two 
partners  upon  dissolution  that  one  should  pay  all  the  debts-  of 
the  firm  constituted  the  retiring  partner  surety  of  the  other  as 
between  themselves,  continues  in  this  language:  "When  it  was 
made  known  to  Colgrove  by  Tallman  that  Barnes  &  Tallman  had 
gone  into  the  bargain  which  was  thus  made  between  them,  Col- 
grove became  bound  to  Tallman  in  equity  to  observe  it."  Thus 
he  assumes  the  only  proposition  in  controversy  in  the  case — that 
is,  that  the  agreement  of  the  partners  made  between  themselves, 
without  consent  of  the  creditor,  imposed  upon  the  latter  the 
obligation  to  protect  the  rights  of  Colgrove  as  a  surety  for  his 
codebtor.  In  support  of  this  assumption  he  cites  the  case  of 
Oakely  v.  Pasheller,  4  Clark  &  F.  207. 

In  the  case  of  Smith  v.  Sheldon,  35  Mich.  49,  24  Am.  Rep. 
529,  Chief  Justice  COOLEY  undertakes  to  reason  to  the  conclusion 
that  such  agreement  would  have  the  effect  to  change  the  contract 
without  the  consent  of  the  creditor.  He  first  lays  down  the 
correct  rule,  that  as  between  themselves  the  retiring  partner 
became  a  surety  for  the  other  partner.  Also  another  proposition 
to  the  effect  that  if  a  contract  be  made  by  two  or  more  persons 
as  joint  obligors  therein,  but  it  does  not  appear  from  the  face 
of  the  writing  that  one  of  them  is  surety  for  the  others,  and  if 
it  be  not  known  to  the  obligee  in  the  contract  that  such  is  the 
case,  then  all  the  obligors  will  be  regarded  as  principals  in  so 
far  as  it  affects  the  obligee  until  the  fact  of  suretyship  is  made 
known  to  him,  after  which  he  must  observe  the  rights  of  the 
surety  in  his  dealings  with  the  principal  in  the  contract.  The 
learned  judge  then  proceeds  to  reason  that  because,  under  such 
circumstances,  the  fact  of  suretyship  being  made  known  to  the 
creditor  imposed  upon  him  the  obligation  to  treat  the  surety  as 
such  from  the  time  the  information  is  received,  it  follows  that 
the  principal  obligors  in  a  contract  may,  by  agreement  between 
themselves,  change  the  obligation  of  one  or  more  from  that  of 
principal  debtor  to  that  of  surety,  and  upon  notice  of  such  agree- 
ment to  the  obligee  the  same  effect  will  be  given  as  if  the  surety- 
ship originated  in  the  contract  itself.  This  is  evidently  unsound 
20 


306  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

reasoning.    In  the  first  case  stated,  the  contract  was  made  by 
the  party  as  a  surety,  but  he -was  deprived  of  the  protection  given 
to  a  surety  by  the  law,  because  the  payee  was  an  innocent  holder 
of  it  for  value  without  notice  of  his  rights  as  surety,  and,  upon 
notice  being  given,  the  character  of  the  creditor  as  innocent 
holder  ceased,  and  the  terms  of  the  contract  became  operative 
and  in  full  effect  as  to  all  the  parties ;  while  in  the  case  decided 
by  Judge  Cooley  he  gave  to  the  action  of  the  parties  this  effect, 
that  the  original  contract  was  in  the  first  instance  on  the  part 
of  all  the  debtors  made  as  principals  and  so  accepted  by  the 
creditor,  but  subsequently,  by  an  agreement  between  the  debtors 
themselves,  without  consent  being  given  on  the   part  of  the' 
creditor,  the  contract  was  changed  and  a  new  one  made  between 
the  debtors,  by  which  the  creditor  is  charged  with  the  duty  of 
taking  care  of  the  interests  of  one  of  the  principal  debtors  as 
surety.     In  the  former  case,  the  effect  of  notice  to  the  creditor 
does  not  change  the  contract,  but  removes  the  legal  impediment 
to  enforcing  its  terms;  in  the  latter,  notice  to  the  creditor  is 
given  the  effect  of  changing  the  terms  of  his  contract  without 
his  consent  and  over  his  protests.     The  doctrine  asserted  as  to 
the  rights  of  the  surety,  who  contracted  as  such,  after  the  surety- 
ship was  made  known  to  the  holder  of  the  contract,  is  equitable 
in  itself  and  consistent  with  sound  legal  principles ;  but  the  con- 
clusion drawn  therefrom,  that  one  who   contracts  as  a  joint 
principal  with  others  may,  by  agreement  with  his  codebtors  and 
without  consent  of  the  payee  in  the  contract,  change  his  relation 
to  the  creditor  so  as  to  impose  new  obligations  upon  him,  is 
neither  just  nor  sound  as  a  matter  of  law.     It  is  inconsistent 
with  the  fundamental  and  accepted  principles  which  govern  the 
subject  of  contracts,  which  require  the  agreement  of  the  parties 
to  make  or  change  them.     The  doctrine  announced  in  Smith  v. 
Sheldon,  35  Mich.  49,  24  Am.  Eep.  529,  originated  In  a  mis- 
understanding of  the  case  of  Oakely.v.  Pashelle^,  4  Clark  &  Fv 
207,  decided  by  the  house  of  lords,  Lord  Lyndhurst  delivering 
the  opinion.     An  examination  of  the  ease  will  show  that  the 
opinion  proceeds  upon  the  assumption  that  the/creditor  in  that 
case  accepted  the  agreement  as  it  was  made  between  the  parties, 
receiving  into  the  partnership  his  son-in-law  as  a  new  debtor 
and  converting  one  of  the  partners  from  arprincipal  debtor  into 
that  of  surety  for  the  new  firm.     During  the  argument  by  the 
attorneys  who  were  asserting  the  proposition  that  Judge  Cooley 


SHAPLEIGH   HARDWARE  CO.  v.  WELLS.  307 

announced  in  his  decision  of  the  case  cited  above,  Lord  Lynd- 
hurst  said,  "Can  you  cite  any  authority  to  the  effect  that  two 
original  principal  debtors  could,  by  an  arrangement  among  them- 
selves, convert  one  into  a  surety  only  for  the  other  principal 
debtor?"  To  which  the  counsel  replied,  "The  letters  and  ac- 
counts and  all  the  circumstances  of  this  case  make  it  quite  clear 
that  Sir  C.  Oakely  accepted  Reid  &  Kynaston  as  principal  deb- 
tors looking  to  Sherard  's  executors  as  sureties. ' '  In  the  opinion, 
Lord  Lyndhurst  does  not  refer  to  the  question  of  consent  or  not, 
but  assumes  that  Sherard 's  estate  had  become  surety  for  the 
new  firm,  and  the  whole  tenor  of  the  opinion  shows  that  it  was 
based  upon  the  fact  that  the  agreement  made  between  the  part- 
ners themselves  and  the  new  partner  was  accepted  by  the  creditor. 
This  is  the  construction  placed  upon  the  .opinion  by  Cockburn, 
chief  justice,  in  Swire  v.  Redman,  L.  R.  1  Q.  B.  Div.  536. 

It  isv  said  by  the  chief  justice  in  Swire  v.  Redman,  L.  R.  1 
Q.  B.  Div.  536,  that  there  is  no  English  case  which  holds  the 
doctrine  that  is  contended  for  by  those  who  claim  that  the  agree- 
ment between  the  partners  themselves  without  the  consent  of 
the  creditor  could  change  their  relations  to  the  latter,  and  we 
have  found  no  decisions  in  the  American  courts  which  directly 
hold  to  that  theory,  except  those  we  have  herein  cited,  all  of 
which  rest  upon  the  misinterpretation  of  Oakely  v.  Pasheller,  4 
Clark  &  F.  207. 

We  therefore  answer  that  one  of  two  or  more  principal  debtors 
cannot,  by  agreement  among  themselves,  without  consent  of  the 
creditor,  so  change  the  character  of  his  liability  to  such  creditor 
from  principal  to  surety  as  to  entitle  him  to  the  benefits  of  the 
provisions  of  the  article  of  the  Revised  Statutes  referred  to. 
Under  the  facts  stated,  Wells  did  not  become  the  surety  of  Chest- 
nut in  so  far  as  it  affected  the  rights  of  the  Shapleigh  Hardware 
Company,  by  the  agreement-  made  between  the  partners  without 
consent  of  the  creditor. 


308  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

c.  In  other  states  it  IMS  'been  held  that  joint  obligors  may  by 
agreement  between  themselves  and  without  the  consent  of  the 
creditor,  make  some  principals  and  others  sureties,  and  by 
notice  to  their  creditor  compel  him  to  treat  them  as  such  and 
protect  the  rights  of  those  who  become  sureties. 

COLGROVE  v.  TALLMAN.     1876. 
67  N.  Y.  95;  23  Am.  Rep.  90. 

Appeal  from  order  of  the  General  Term  of  the  Supreme  Court, 
in  the  fourth  judicial  department,  reversing  a  judgment  in  favor 
of  plaintiff,  entered  upon  the  report  of  a  referee,  and  granting 
a  new  trial.  (Mem.  of  decision  below,  5  Hun.  103.) 

This  was  an  action  upon  a  promissory  note,  made  by  the  firm 
of  H.  C.  Barnes  &  Co.,  of  which  firm  defendants  were  sole 
partners. 

The  note  was  given  October  3,  1863,  payable  "fifteen  days 
demand  after  date."  About  June  21,  1864,  defendant,  Tallman, 
sold  out  all  his  interest  in  the  partnership  property  and  effects 
to  defendant  Barnes,  who  agreed  to  assume  and  pay  all  the  firm 
debts.  A  few  days  thereafter  Tallman  notified  plaintiff,  who 
then  held  the  note,  of  the  agreement,  and  requested  him  to  pro- 
ceed and  collect  the  note,  immediately.  Barnes  was,  at  the  time, 
solvent  and  able  to  pay.  He  failed  in  1866,  made  an  assignment 
and  was  thereafter,  up  to  the  time  of  trial,  hopelessly  insolvent. 
Plaintiff  made  a  demand  in  June,  1865,  but  made  no  effort  to 
collect  the  note  until  after  the  failure. 

FOLGER,  J.  By  the  dissolution  of  the  copartnership,  of  which 
Barnes  and  Tallman  were  the  members,  and  the  transfer  of  all 
the  property  to  Barnes,  and  his  agreement  with  Tallman  to  pay 
all  the  debts  of  the  firm ;  Tallman  became  in  equity,  as  between 
himself  and  Barnes,  a  surety,  for  Barnes  as  principal  debtor  in 
those  debts.  (Millerd  v.  Thorn,  56  N.  Y.  402 ;  Savage  v.  Putnam, 
32  id.  501 ;  Kinney  v.  McCullough,  1  Sandf.  Ch.  R.  370;  Morss  v. 
Gleason,  64  N.  Y.  204.) 

When  it  was  made  known  to  Colgrove  by  Tallman,  that  Barnes 
and  Tallman  had  gone  into  the  bargain,  which  was  thus  made 
between  them,  Colgrove  became  bound  to  Tallman  in  equity  to 
observe  it.  Thus,  if  he  had  made  with  Barnes,  a  valid  agree- 
ment to  extend  the  time  of  payment  of  the  note  made  to  him 


COLGROVE    v.    TALLMAN. 


309 


by  the  firm,  Tallman  would  have  been  discharged.  (56  N.  Y. 
supra.)  This  could  be,  only  on  the  ground  that  extension  of 
time  of  payment  of  a  debt,  granted  by  a  creditor  to  a  principal 
debtor,  acts  as  a  discharge  of  a  surety  of  the  debt,  from  his 
liability  thereon. 

It  is  recognized  as  resting  upon  this  principle,  in  Oakley  v. 
Pashelee  (10  Bligh.  New  Par.  R.  548).  It  was  there  argued 
for  the  creditor,  that  the  doings  of  his  debtors  among  themselves 
could  not  alter  his  rights,  (page  580),  and  that  a  partner  retiring, 
with  an  agreement  for  indemnity  from  his  copartner,  was  not 
thereby  converted  into  a  surety,  (page  581).  But  it  was  ruled 
that  he  was.  The  opinion  given  by  Lord  LYNDHURST,  in  the 
House  of  Lords,  is:  That  the  representatives  of  the  retiring 
partner  stood  in  the  character  of  sureties  (page  590),  which  the 
creditor  was  bound  to  observe,  having  had  notice  of  the  dealings 
between  the  partners,  his  original  debtors;  and  see  Morss  v. 
Gleason  (supra),  as  bearing  upon  this  point.  It  is  urged  here, 
that  the  consent  of  the  creditor  is  needed  to  create  these  new 
relations  between  him  and  his  debtors;  but  the  English  case 
above  cited  does  not  make  that  a  necessary  fact.  Nor  are  there 
lacking  other  instances  in  the  law,  wherein  the  action  of  third 
parties  among  themselves,  has  changed  the  relations  of  the 
creditor  to  them,  without  his  assent  thereto,  and  has  created 
equities  in  favor  of  all  or  one  of  them,  which  he  was  bound  to 
regard,  and  to  refrain  from  injuring  by  his  action  or  omission. 
Thus,  if  the  equity_of  redemption  of  mortgaged  premises  is  sold 
on  execution  by  a  judgment  creditor  of  the  mortgagor,  and  then 
the  mortgagee,  having  also  a  bond  for  his  debt,  seeks  to  enforce 
it  out  of  property  of  the  mortgagor  other  than  the  lands  mort- 
gaged, he  will  either  be  stayed,  or  forced  to  make  over  the  debt 
and  security  to  the  mortgagor,  so  that  he  may  save  himself  out 
of  the  premises.  (Per  Kent,  Ch.,  Tice  v.  Annin,  2  J.  ch.  125-8; 
see  a  kindred  case,  Ferris  v.  Crawford,  2  Denio  595.)  So,  too, 
if  a  mortgagor  conveys  part  of  the  mortgaged  premises  sub  j  ect 
to  the  whole  mortgage,  the  part  sold  is  first  liable^for  The  debt, 
i.  e.,  it  becomes  the  principal  debtor ;  and  the  mortgagee  must 
exhaust  it  before  he  can  seek  other  property  of  the  mortgagor, 
who  has  become  in  equity  the  surety.  (Halsey  v.  Reed,  9  Paige 
446.)  And  what  comes  close  to  this  case  in  principle,  and  shows 
that  a  creditor  must  care  for  equities  growing  from  new  rela- 
tions, arising  out  of  changes  made  without  his  assent,  is  this: 


310  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

jfjseveral  lots  are  mortgaged,  and  after  that  have  come  to  dif- 
ferent owners,  and  the  mortgagee  releases  some  of  them,  he  may 
not  enforce  against  those  not  released,  more  than  a  proportionate 
n  nount  of  the  mortgage  debt ;  the  creditor,  says  the  chancellor, 
owes  a  duty  to  his  debtors,  not  to  impair  their  rights  as  against 
each  other.  (Stevens  v.  Cooper,  1  J.  Ch.  425.)  This  rule  has 
been  reiterated  with  the  requirement  that  the  creditor  must 
have  notice  of  the  change  sufficient  to  put  him  on  inquiry.  (How- 
ard Ins.  Co.  v.  Halsey,  8  N.  Y.  271;  and  see  Guion  v.  Knapp, 
6  Paige  35;  Stuyvesant  v.  Hall,  2  Barb.  Ch.  151.)  The  reason 
is,  that  the  parcels  sold  have  become  as  sureties  to  the  parcels 
not  sold.  The  latter  are  as  principals.  A  release  of  them  is  as 
a  release  of  a  principal  debtor,  which  discharges  the  surety.  To 
/  the  same  end  is  the  rule,  that  a_creditor  having  a  lien  upon  two 
funds,  will  be  forced,  in  favor  of  an  after  lienor  having  a  claim 
upon  one  of  the  funds  only,  to  seek  his  debt  from  the  other 
fund.  (Chesebrough  v.  Millard,  1  J.  Ch.  409.)  And  if  he 
does  aught  to  prejudice  the  claim  upon  the  one  fund  of  the 
after  lienor,  after  notice  of  the  lien,  he  will  to  that  extent  be 
cut  off  from  his  own  claim  upon  that  fund. 

In  equity,  then,  the  relations  of  the  parties  to  this  case,  are 
that  Barnes  is  the  principal  debtor,  Tallman  his  surety  for  the 
payment  of  the  debt,  and  Colgrove  their  creditor,  of  one  as 
the  principal  debtor  of  the  other  as  surety.  These  relations 
existed,  as  soon  as  Tallman  gave  notice  to  Colgrove,  of  the  dis- 
solution of  the  partnership  and  the  agreement  between  him  and 
Barnes.  Each  of  them  was,  after  that,  affected  by  all  the  rules 
applicable  to  persons  in  those  relations. 

It  is  the  settled  law  of  this  State,  and  one  of  the  rules  of 
the  relations  of  creditor,  principal  debtor  and  surety,  that  the 
surety,  while  the  principal  is  solvent  and  can  be  made  to  pay 
the  debt,  may  require  of  the  creditor  that  he  collect  it  of  the 
principal,  and  if  the  creditor  refuses  or  neglects  so  to  do,  and 
the  principal  becomes  insolvent  and  unable  to  pay,  the  creditor 
may  not  then  have  his  debt  of  the  surety;  it  is  expressly  so 
declared  in  Pain  v.  Packard  (13  J.  E.  174),  King  v.  Baldwin 
(17  id.  384),  Remsen  v.  Beekman  (25  N.  Y.  552) ;  and  treated 
as  settled  in  Manchester  Manufacturing  Company  v.  Sweeting 
(10  Wend.  163) ;  and  though  questioned,  yet  not  denied  in 
Warner  v.  Beardsley  (8  Wend.  194)  and  Herrick  v.  Borst  (4 
Hill  650);  limited  in  Trimble  v.  Thorne  (16  J.  B.  151),  and 


SMITH    v.    SHE'LDEN.  311 

by  ANDREWS,  J.,  in  Wells  v.  Mann  (45  N.  Y.  327),  so  as  not 
to  include  indorsers  and  guarantors  by  independent  collateral 
contract;  and  recognized  by  Church,  Ch.  J.,  in  Hubbard  v. 
Gurney  (64  N.  Y.  457). 

And  surely  the  reasons  for  the  rule  apply  to  the  case  in  hand. 
We  have  shown  that  the  relation  of  surety  was  created  in  Tall- 
man.  A  surety  is  discharged  in  such  case,  because  it  is  the 
duty  of  the  creditor  to  obtain  payment  in  the  first  instance  of 
the  principal  debtor,  and  not  of  him  who  is  surety;  it  is  right 
that  the  principal  should  pay  the  debt;  it  is  inequitable  and 
unjust  for  the  creditor,  by  delaying  to  sue,  to  expose  the  surety 
to  the  hazard  arising  from  a  prolongation  of  the  credit;  and 
the  creditor  is  under  an  equitable  obligation  to  obtain  payment 
from  the  principal,  and  not  from  the  surety,  unless  the  principal 
is  unable  to  pay.  (Per  SPENCER,  Ch.  J.,  King  v.  Baldwin,  supra; 
per  WRIGHT,  J.,  25  N.  Y.,  supra.)  These  reasons  apply  in  full 
force  here.  Tallman  had  given  up  to  Barnes,  and  put  out  of 
his  own  control  all  of  the  property  of  the  firm,  and  had  given 
Colgrove  notice,  and  requested  him  to  collect  the  debt.  The 
facts  of  the  case  bring  the  parties  within  the  rule  above  noticed, 
and  set  it  in  operation  against  the  plaintiff. 

Upon  this  ground,  without  considering  any  other  question  in 
the  case,  the  order  of  the  General  Term  should  be  affirmed  and 
judgment  absolute  rendered  against  plaintiff  on  stipulation,  with 
costs. 

All  concur. 

Order  affirmed  and  judgment  accordingly. 


SMITH   v.    SHELDEN.     1876. 
55  Mich.  42;   24  Am.  Rep.  529. 

Action  by  Shelden  against  Smith  and  others,  on  a  partnership 
indebtedness.  The  opinion  states  the  case. 

COOLEY,  C.  J.  The  legal  questions  in  this  case  arise  upon 
the  following  facts: 

Prior  to  June,  1867,  Eldad  Smith,  Isaac  Place  and  Francis 
B.  Owen  were  partners  in  trade  under  the  firm  name  of  Place, 
Smith  &  Owen,  and  as  such  became  indebted  to  defendants  in 


312  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

error  in  the  sum  of  nine  hundred  and  sixty-nine  dollars  on 
book  account. 

In  the  month  mentioned  the  firm  was  dissolved  by  mutual 
consent,  Place  purchasing  the  assets  of  his  copartners  and  agree- 
ing to  pay  off  the  partnership  liabilities,  including  that  to  the 
defendants  in  error.  On  the  second  day  of  the  following  month 
Place  informed  the  defendants  in  error  of  this  arrangement,  and 
that  he  had  taken  the  assets  and  assumed  the  liabilities  of  the 
firm,  and  they,  without  the  consent  or  knowledge  of  Smith  and 
Owen,  took  from  Place  a  note  for  the  amount  of  the  firm  in- 
debtedness to  them,  payable  at  one  day,  with  ten  per  centum 
interest.  They  did  not  agree  to  receive  this  note  in  payment 
of  the  partnership  indebtedness,  but  they  kept  it  and  continued 
their  dealings  with  Place,  who  made  payments  upon  it.  The 
payments,  however,  did  not  keep  down  the  interest.  Place,  in 
1872,  became  insolvent  and  made  an  assignment,  and  Smith  was 
then  called  upon  to  make  payment  of  the  note.  This  was  the 
first  notice  he  had  that  he  was  looked  to  for  payment.  On  his 
declining  to  make  payment,  suit  was  brought  on  the  original 
indebtedness  and  judgment  recovered. 

The  position  taken  by  the  plaintiffs  below  was,  that  as  they 
had  never  received  payment  of  their  bill  for  merchandise  they 
were  entitled  to  recover  it  of  those  who  made  the  debt,  the 
giving  of  the  note  which  still  remained  unpaid  being  immaterial. 
On  behalf  of  Smith  it  was  contended  that,  by  the  arrangement 
between  Place  and  his  copartners,  the  latter,  as  between  the 
three,  became  the  principal  debtor,  and  that  from  the  time 
when  the  creditors  were  informed  of  this  arrangement  they  were, 
bound  to  regard  Place  as  principal  debtor  and  Smith  and  Owen 
as  sureties,  and  that  any  dealing  of  the  creditors  with  the  prin- 
cipal to  the  injury  of  the  sureties  would  have  the  effect  to  re- 
lease them  from  liability.  And  it  is  further  contended  that 
the  taking  of  the  note  from  Place,  and  thereby  giving  him  time, 
however  short,  was  in  law  presumptively  injurious. 

Upon  'this  state  of  facts  the  following  questions  have  been 
argued  in  this  court: 

/  1.  Was  the  note  given  by  Place  in  the  copartnership  name 
for  the  copartnership  indebtedness,  but  given  after  the  dissolu- 
tion, binding  upon  Smith  and  Owen? 

2.  If  Smith  and  Owen  were  not  bound  by  the  note,  were  they 
entitled  to  the  rights  of  sureties?  And, 


SMITH    v.    SHELDEN.  313 

3.  Did  the  taking  of  the  note  given  by  Place  discharge  Smith 
and  Owen  from  their  former  liability? 

On  the  first  point  it  is  argued  in  support  of  the  judgment 
that  when  a  partnership  is  dissolved  the  partner  who  is  intrusted 
with  the  settlement  of  the  concern  should  be  held  to  have  implied 
authority  to  give  notes  in  settlement.  On  the  other  hand,  it  is 
insisted  that  in  law  he  has  no  such  authority,  and  that  if  he 
assumes,  as  was  done  in  this  case,  to  give  a  note  in  the  partner- 
ship name,  it  will  in  law  be  his  individual  note  only. 

Whatever  might  be  the  case  if  the  obligation  which  was  given 
had  been  a  mere  acknowledgment  of  the  amount  due,  in  the  form 
of  a  due-bill  or  I  0  U,  we  are  satisfied  that  there  is  no  good 
reason  for  recognizing  in  the  partner  who  is  to  adjust  the  busi- 
ness of  the  concern  any  implied  authority  to  execute  such  a  note 
as  was  given  in  this  case.  This  note  was  something  more  than 
a  mere  acknowledgment  of  indebtedness;  and  it  bore  interest 
at  a  large  rate.  It  was  in  every  respect  a  new  contract.  The 
liability  of  the  parties  upon  their  indebtedness  would  be  in- 
creased by  it  if  valid,  and  their  rights  might  be  seriously  com- 
promised by  the  execution  of  paper  payable  at  a  considerable 
time  in  the  future  if  the  partner  intrusted  with  the  adjustment 
of  their  concerns  were  authorized  to  make  new  contracts.  It 
was  assumed  in  P.  &  M.  Bank  v.  Kercheval,  2  Mich.  506-519, 
that  the  law  was  well  settled  that  no  such  implied  authority 
existed,  and  we  are  not  aware  that  this  has  before  been  questioned 
in  this  State.  See  Pennoyer  v.  David,  8  Mich.  407.  "We  think 
it  much  safer  to  require  express  authority  when  such  obligations 
are  contemplated,  than  to  leave  one  party  at  liberty  to  execute 
at  discretion  new  contracts  of  this  nature,  which  may  postpone 
for  an  indefinite  period  the  settlement  of  their  concerns,  when  a 
settlement  is  the  very  purpose  for  which  he  is  to  act  at  all. 

For  a  determination  of  the  question  whether  Smith  and  Owen 
were  entitled  to  the  rights  of  sureties,  it  seems  only  necessary 
to  point  out  the  relative  position  of  the  several  parties  as  re- 
gards the  partnership  debt.  Place,  by  the  arrangement,  had 
agreed  to  pay  this  debt,  and  as  between  himself  and  Smith 
and  Owen,  he  was  legally  bound  to  do  so.  But  Smith  and 
Owen  were  also  liable  to  the  creditors  equally  with  Place,  and 
the  latter  might  look  to  all  three  together.  Had  they  done  so 
and  made  collections  from  Smith  and  Owen,  these  parties  would 
have  been  entitled  to  demand  indemnity  from  Place.  This  we 


314  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

believe  to  be  a  correct  statement  of  the  relative  rights  and 
obligations  of  all. 

Now  a  surety,  as  we  understand  it,  is  a  person  who,  being  liable 
to  pay  a  debt  or  perform  an  obligation,  is  entitled,  if  it  is  enforced 
against  him,  to  be  indemnified  by  some  other  person,  who  ought 
himself  to  have  made  payment  or  performed  before  the  surety 
was  compelled  to  do  so.  It  is  immaterial  in  what  form  the  rela- 
tion of  principal  and  surety  is  established,  or  whether  the  cred- 
itor is  or  is  not  contracted  with  in  the  two  capacities,  as  is  often 
the  case  when  notes  are  given  or  bonds  taken,  the  relation  is 
fixed  by  the  arrangement  and  equities  between  the  debtors  or 
obligors,  and  may  be  known  to  the  creditor,  or  wholly  unknown. 
If  it  is  unknown  to  him,  his  rights  are  in  no  manner  affected 
by  it;  but  if  he  knows  that  one  party  is  surety  merely,  it  is 
only  just  to  require  of  him  that  in  any  subsequent  action  he 
may  take  regarding  the  debt,  he  shall  not  lose  sight  of  the 
surety's  equities. 

That  Smith  and  Owen  were  sureties  for  Place,  and  the  latter 
was  principal  debtor  after  the  dissolution  of  the  copartnership, 
seems  to  us  unquestionable.  It  was  then  the  duty  of  Place  to 
pay  this  debt  and  save  them  from  being  called  upon  for  the 
amount.  But  if  the  creditors,  having  a  right  to  proceed  against 
them  all,  should  take  steps  for  that  purpose,  the  duty  of  Place 
to  indemnify,  and  the  right  of  Smith  and  Owen  to  demand  in- 
demnity, were  clear.  Every  element  of  suretyship  is  here  pres- 
ent, as  much  as  if,  in  contracting  an  original  indebtedness,  the 
contract  itself  had  been  made  to  show  on  its  face  that  one  of 
the  obligors  was  surety  merely.  As  already  stated,  it  is  im- 
material how  the  fact  is  established,  or  whether  the  creditor  is 
or  is  not  a  party  to  the  arrangement  which  establishes  it. 

This  view  of  the  position  of  the  parties  indicates  clearly  the 
right  of  Smith  and  Owen  to  the  ordinary  rights  and  equities  of 
sureties.  The  cases  which  have  held  that  retiring  partners  thus 
situated  are  to  be  treated  as  sureties  merely  have  attempted  no 
change  in  the  law,  but  are  entirely  in  harmony  with  older  author- 
ities which  have  only  applied  the  like  principle  to  different  states 
of  facts,  where  the  relative  position  of  the  parties  as  .regards  the 
debt  was  precisely  the  same.  We  do  not  regard  them  as  working 
any  innovation  whatever.  The  cases  we  particularly  refer  to 
are  Oakeley  v.  Pasheller,  4  Cl.  &  Fin.  207;  Wilson  v.  Lloyd, 
L.  R.,  16  Eq.  Cas.  60 ;  and  Millerd  v.  Thorn,  56  N.  Y.  402. 


UNION  MUT.  LIFE  INS.  CO.  v.  HANFORD.  315 

'And  it  follows  as  a  necessary  result  from  what  has  been  stated, 
that  Smith  and  Owen  were  discharged  by  the  arrangement  made 
by  the  creditors  with  Place.  They  took  his  note  on  time,  with 
knowledge  that  Place  had  become  the  principal  debtor,  and 
without  the  consent  or  knowledge  of  the  sureties.  They  thereby 
endangered  the  security  of  the  sureties,  and  as  the  event  has 
proved,  indulged  Place  until  the  security  became  of  no  value. 
True,  they  gave  but  very  short  time  in  the  first  instance;  but, 
as  was  remarked  by  the  vice-chancellor  in  Wilson  v.  Lloyd,  L.  R., 
16  Eq.  Gas.  60,  71,  "the  length  of  tune  makes  no  kind  of  differ- 
ence." The  tune  was  the  same  in  Fellows  v.  Prentiss,  3  Denio 
512,  where  the  surety  was  also  held  discharged.  And  see  Okie 
v.  Spencer,  2  Whart.  253.  But  that  indulgence  beyond  the  time 
fixed  was  contemplated  when  the  note  was  given  is  manifest 
from  the  fact  that  it  was  made  payable  with  interest.  In  a 
legal  point  of  view  this  would  be  immaterial,  but  it  has  a  bearing 
on  the  equities,  and  it  shows  that  the  creditors  received  or 
bargained  for  a  consideration  for  the  very  indulgence  which  was 
granted,  and  which  ended  in  the  insolvency  of  Place.  When  they 
thus  bargain  for  an  advantage  which  the  sureties  are  not  to 
share  with  them,  it  is  neither  right  nor  lawful  for  them  to  turn 
over  to  the  sureties  all  the  risks.  This  is  the  legal  view  of  such 
a  transaction,  and  in  most  cases  it  works  substantial  justice. 

The  judgment  must  be  reversed,  with  costs,  and  a  new  trial 
ordered. 

The  other  justices  concurred. 

Judgment  reversed. 


UNION  MUTUAL  LIFE  INS.  CO.  v.  HANFORD.     1892. 
143  U.  8.  185;  12  Sup.  Ct.  Rep.  437;  36  L.  Ed.  118. 

Appeal  from  the  circuit  court  of  the  United  States  for  the 
northern  district  of  Illinois.  Affirmed. 

Mr.  Justice  GRAY.  This  was  a  bill  in  equity,  filed  March  30, 
1878,  by  the  Union  Mutual  Life  Insurance  Company,  a  corpora- 
tion of  Maine,  against  Philander  C.  Hanford,  Orrin  P.  Chase, 
Frederick  L.  Fake,  and  Lucy  D.  Fake,  his  wife,  citizens  of 
Illinois,  to  foreclose  by  sale  a  mortgage  of  land  in  Chicago,  and 
to  obtain  a  decree  for  any  balance  due  the  plaintiff  above  the 


316  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

proceeds  of  the  sale.  Fake  and  wife  were  defaulted,  an'd  Han- 
ford  and  Chase  answered.  -  The  case  was  heard  upon  a  master 's 
report,  and  the  evidence  taken  before  him,  by  which  (so  far  as 
is  material  to  be  stated)  it  appeared  to  be  as  follows: 

On  September  9,  1870,  Hanford  and  Chase  mortgaged  the 
land  to  one  Schureman  to  secure  the  payment  of  three  promis- 
sory notes  of  that  date,  signed  by  them,  and  payable  to  his  order, 
one  for  $5,000,  in  one  year,  and  the  second  for  $5,000,  in  two 
years,  each  with  interest  at  the  rate  of  8  per  cent  annually,  and 
the  third  for  $6,000,  in  three  years,  with  interest  at  the  rate  of 
10  per  cent  annually. 

On  January  30,  1871,  (the  first  note  having  been  paid,)  the 
plaintiff,  through  one  Boone,  its  financial  agent,  bought  the  mort- 
gage, and  Schureman  indorsed  the  remaining  notes,  and  assigned 
the  mortgage  to  plaintiff. 

On  September  9,  1872,  Hanford  and  Chase  conveyed  the  land 
to  Mrs.  Fake  by  deed  of  warranty,  /vith  the  exception  of  and 
subject  to"  the  mortgage,  (describing  it,)  "which  said  mortgage 
or  trust-deed,  and  the  notes  for  which  the  same  is  collateral 
security,"  (describing  them,)  "it  is  hereby  expressly  agreed 
shall  be  assumed,  and  paid  by  the  party  of  the  second  part,  and, 
when  paid,  are  to  be  delivered,  fully  canceled,  to  said  Chase 
and  Hanford." 

At  or  about  the  date  of  this  conveyance,  Chase  called  with 
Fake  at  Boone 's  office,  and  told  him  that  Hanford  and  Chase 
had  sold  the  property  to  Mrs.  Fake,  and  that  she  was  to  pay 
the  mortgage,  and  Boone,  as  Chase  testified,  "said,  'All  right,' 
or  something  of  that  sort."  At  the  same  interview,  Boone,  as 
the  plaintiff's  agent,  in  consideration  of  $150  paid  him  by  Chase, 
extended  the  $5,000  note  until  September  9,  1874. 

Fake,  as  his  wife's  agent,  afterwards  paid  interest  on  the 
notes  to  Boone,  as  the  plaintiff's  agent;  and  on  January  9,  1875, 
for  the  sum  of  $340,  obtained  from  him,  without  the  knowledge 
of  Hanford  or  Chase,  an  extension  of  the  notes  until  September 
9,  1875. 

The  value  of  the  mortgaged  premises  in  September,  1874,  was 
$18,000  to  $19,000,  and  at  the  date  of  the  master's  report,  in 
April,  1879,  was  $10,000  to  $15,000  only. 

The  principal  defense  relied  on  by  Hanford  and  Chase  was 
that  they  were  discharged  from  personal  liability  on  the  notes 
by  this  extension  of  the  time  of  payment  without  their  consent. 


UNION  MUT.  LIFE  INS.  CO.  V.  HANFORD.  317 

The  land  was  sold  by  the  master,  under  order  of  the  court, 
for  $12,000,  which  was  insufficient  to  satisfy  the  sums  due  on 
the  mortgage;  and  the  plaintiff,  after  notice  to  Hanford  and 
Chase,  moved  for  a  deficiency  decree  for  a  sum  amounting,  with 
interest,  to  more  than  $5,000.  The  circuit  court  overruled  the 
motion.  27  Fed.  Rep.  588.  The  plaintiff  appealed  to  this  court. 

Mr.  Justice  GRAY,  after  stating  the  case  as  above,  delivered 
the  opinion  of  the  court. 

Few  things  have  been  the  subject  of  more  difference  of  opinion 
and  conflict  of  decision  than  the  nature  and  extent  of  the  right 
of  a  mortgagee  of  real  estate  against  a  subsequent  grantee,  who 
by  the  terms  of  the  conveyance  to  him  agrees  to  .assume  and  pay 
the  mortgage. 

All  agree  that  the  grantee  is  liable  to  the  grantor,  and  that, 
as  between  them,  the  grantee  is  the  principal,  and  the  grantor 
is  the  surety,  for  the  payment  of  the  mortgage  debt.  The  chief 
diversity  of  opinion  has  been  upon  the  question  whether  the 
grantee  does  or  does  not  assume  any  direct  liability'to  the  mort- 
gagee. 

By  the  settled  law  of  this  court,  the  grantee  is  not  directly 
liable  to  the  mortgagee  at  law  or  in  equity ;  and  the  only  remedy 
of  the  mortgagee  against  the  grantee  is  by  bill  in  equity  in  the 
right  of  the  mortgagor  and  grantor,  by  virtue  of  the  right  in 
equity  of  a  creditor  to  avail  himself  of  any  security  which  his 
debtor  holds  from  a  third  person  for  the  payment  of  the  debt. 
Keller  v.  Ashford,  133  U.  S.  610,  10  Sup.  Ct.  Rep.  494;  Willard 
v.  Wood,  135  U.  S.  309, 10  Sup.  Ct.  Rep.  831.  In  that  view  of 
the  law  there  might  be  difficulties  in  the  way  of  holding  that 
a  person  who  was  under  no  direct  liability  to  the  mortgagee 
was  his  principal  debtor,  and  that  the  only  person  who  was 
directly  liable  to  him  was  chargeable  as  a  surety  only,  and  con- 
sequently that  the  mortgagee,  by  giving  time  to  the  person  not 
directly  and  primarily  liable  to  him,  would  discharge  the  only 
person  who  was  thus  liable.  Shepherd  v.  May,  115  U.  S.  505, 
511,  6  Sup.  Ct.  Rep.  119 ;  Keller  v.  Ashford,  133  U.  S.  610,  625, 
10  Sup.  Ct.  Rep.  494.  But  the  case  at  bar  does  not  present 
itself  in  that  aspect. 

The  question  whether  the  remedy  of  the  mortgagee  against 
the  grantee  is  at  law  and  in  his  own  right,  or  in  equity  and  in 
the  right  of  the  mortgagor  only,  is,  as  was  adjudged  in  Willard 
v.  Wood,  above  cited,  to  be  determined  by  the  law  of  the  place 


318  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

where  the  suit  is  brought.  By  the  law  of  Illinois,  where  the 
present  action  was  brought,  as  by  the  law  of  New  York,  and 
of  some  other  states,  the  mortgagee  may  sue  at  law  a  grantee, 
who,  by  the  terms  of  an  absolute  conveyance  from  the  mortgagor, 
assumes  the  payment  of  the  mortgage  debt.  Dean  v.  Walker, 
107  111.  540,  545,  550;  Thompson  v.  Dearborn,  Id.  87,  92;  Bay 
v.  Williams,  112  111.  91 ;  Burr  v.  Beers,  24  N.  Y.  178 ;  Thorp 
v.  Coal  Co.,  48  N.  Y.  253.  According  to  that  view,  the  grantee, 
as  soon  as  the  mortgagee  knows  of  the  arrangement,  becomes 
directly  and  primarily  liable  to  the  mortgagee  for  the  debt 
for  which  the  mortgagor  was  already  liable  to  the  latter;  and 
the  relation  of  the  grantee  and  the  grantor  towards  the  mort- 
gagee, as  well  as  between  themselves,  is  thenceforth  that  of 
principal  and  surety  for  the  payment  of  the  mortgage  debt. 
Where  such  is  held  to  be  the  relation  of  the  parties,  the  conse- 
quence must  follow  that  any  subsequent  agreement  of  the  mort- 
gagee with  the  grantee,  without  the  assent  of  the  grantor,  ex- 
tending the  time  of  payment  of  the  mortgage  debt,  discharges 
the  grantor  from  all  personal  liability  for  that  debt.  Calvo  v. 
Davies,  73  N.  Y.  211;  Bank  v.  Estate  of  Waterman,  134  111. 
461,  467,  29  N.  E.  Rep.  503. 

The  case  is  thus  brought  within  the  well  settled  and  familiar 
rule  that  if  a  creditor,  by  positive  contract  with  the  principal 
debtor,  and  without  the  consent  of  the  surety,  extends  the  time 
of  payment  by  the  principal  debtor,  he  thereby  discharges  the 
surety ;  because  the  creditor,  by  so  giving  time  to  the  principal, 
puts  it  out  of  the  power  of  the  surety  to  consider  whether  he 
will  have  recourse  to  his  remedy  against  the  principal,  and  be- 
cause the  surety  cannot  have  the  same  remedy  against  the  prin- 
cipal as  he  would  have  had  under  the  original  contract;  and  it 
is  for  the  surety  alone  to  judge  whether  his  position  is  altered 
for  the  worse.  1  Spence  Eq.  Jur.  638;  Samuell  v.  Howarth,  3 
Mer.  272;  Miller  v.  Stewart,  9  Wheat.  680,  703.  The  rule 
applies  whenever  the  creditor  gives  time  to  the  principal,  know- 
ing of  the  relation  of  principal  and  surety,  although  he  did  not 
know  of  that  relation  at  the  time  of  the  original  contract,  (Ewin 
v.  Lancaster,  6  Best  &  S.  571;  Financial  Corp.  v.  Overend,  L. 
R.  7  Ch.  App.  142,  and  L.  R.  7  H.  L.  348 ;  Wheat,  v.  Kendall, 
6  N.  H.  504;  Guild  v.  Butler,  127  Mass.  386) ;  or  even  if  that 
relation  has  been  created  since  that  time,  (Oakeley  v.  Pasheller, 


EDITORIAL   NOTE.  319 

4  Clark  &  F.  207,  233,  10  Bligh  N.  S.  548,  590;    Colgrove  v. 
Tollman,  67  N.  Y.  95;  Smith  v.  Shelden,  35  Mich.  42). 

In  the  case  at  bar,  the  mortgagee,  immediately  after  the  abso- 
lute conveyance  by  the  mortgagors,  was  informed  of  and  as- 
sented to  that  conveyance  and  the  agreement  of  the  grantee  to 
pay  the  mortgage  debt,  and  afterwards  received  interest  on  the 
debt  from  the  grantee;  and  the  subsequent  agreement  by  which 
the  mortgagee,  in  consideration  of  the  payment  of  a  sum  of 
money  by  the  grantee,  extended  the  time  of  payment  of  the  debt, 
was  made  without  the  knowledge  or  assent  of  the  mortgagors. 
Under  the  law  of  Illinois,  which  governs  this  case,  the  mortgagors 
were  thereby  discharged  from  all  personal  liability  on  the  notes, 
and  the  circuit  court  rightly  refused  to  enter  a  deficiency  decree 
against  them. 

Decree  affirmed. 

EDITORIAL  NOTE. 

It  will  be  observed  that  the  last  two  rules  are  the  exact  op- 
posites  of  each  other,  and  the  cases  that  support  them  are  di- 
rectly in  conflict.  This  doubtless  arises  from  the  supposed  con- 
flict of  two  well-settled  principles  of  jurisprudence.  By  one 
principle  a  party  to  a  contract  may  rely  upon  and  enforce  his 
contract  in  the  exact  form  in  which  he  originally  made  it,  and 
his  debtors  may  not,  by  any  arrangement  between  themselves 
to  which  he  does  not  consent,  impair  his  contract  or  restrict  his 
rights  under  it.  By  another  principle  a  creditor,  while  entitled 
to  enforce  his  contract,  must  yet  do  so  in  such  a  manner  as  not 
to  needlessly  sacrifice  the  rights  of  others,  even  though  such 
others  may  be  strangers  to  his  contract.  Thus  if  a  creditor 
holds  a  mortgage  on  two  pieces  of  property  and  his  mortgagor 
sells  one  of  them,  the  purchaser  can  compel  the  creditor  to 
exhaust  the  remaining  piece  before  going  upon  that  sold.  And 
this  is  done  even  though  the  creditor  may  not  have  consented  to 
the  sale.  Also  if  a  creditor  has  a  lien  on  two  funds  and  another 
creditor  has  a  subsequent  lien  on  but  one  of  them,  the  latter  can 
compel  the  first  creditor  to  exhaust  the  fund  on  which  the  second 
has  no  lien  in  order  to  save  the  other,  if  possible,  for  him.  This 
does  not  deprive  the  creditor  of  any  substantial  right,  because, 
if  necessary,  all  the  security  must  go  to  pay  the  first  debt,  but 
it  does  compel  the  first  creditor  to  regard  the  rights  of  the 


320  AGREEMENT  AS  TO  PRIMARY  LIABILITY. 

second,  even  though  by  his  contract  he  might  be  free  to  take  his 
own  course  as  to  the  order  in  which  he  would  exhaust  the  funds. 
Those  courts  therefore  that  have  emphasized  the  sacred  character 
of  the  contract  have  been  led  to  the  conclusion  that,  inasmuch 
as  by  the  original  contract  the  obligors  were  all  principals  and 
the  creditor  might  lawfully  arrange  with  any  of  them  to  extend 
time  of  payment,  he  can  not  be  restricted  in  this  right  by  any 
subsequent  arrangement  to  which  he  does  not  consent.  Those 
courts,  on  the  other  hand,  that  have  emphasized  the  equitable 
principles  above  referred  to,  have  been  led  to  the  conclusion 
that  while  the  creditor  may  rely  on  the  exact  terms  of  his  con- 
tract and  enforce  his  original  contract  exactly  as  he  has  made  it, 
yet,  after  he  has  knowledge  that  his  obligors  by  an  arrangement 
between  themselves  have  become  part  principals  and  part  sure- 
ties, he  can  not  thereafter  make  a  new  contract  with  such  prin- 
cipals in  disregard  of  the  rights  of  those  who  have  now  become 
sureties.  By  the  extension  of  time  he  is  not  enforcing  the  orig- 
inal contract  but  making  a  new  one,  and  in  doing  so  he  must 
regard  the  rights  of  others  that  have  intervened  since  the  making 
of  his  original  contract,  even  though  he  has  never  given  his  con- 
sent to  the  arrangement  that  has  created  these  rights. 

In  this  situation  two  great  principles  of  the  law  seem  to  come 
into  conflict,  and  one  will  be  inclined  to  the  one  or  to  the  other 
view  as  he  may  be  inclined  to  lay  special  stress  upon  the  one 
or  the  other  principle.  It  is  difficult  to  answer  the  argument 
of  Judge  FOLGER  in  Colgrove  v.  Tallman,  supra,  and  Judge 
COOLEY  in  Smith  v.  Sheldon,  supra,  although  it  can  hardly  be 
said  that  they  are  supported  by  the  greatest  number  of  decided 
cases.  Which. will  finally  become  the  settled  American  doctrine 
on  this  question  remains  to  be  determined. 

Those  who  care  to  follow  this  interesting  inquiry  further  will 
find  the  following  cases  more  or  less  in  point: 

Campbell  v.  Floyd,  153  Pa.  St.  84,  25  Atl.  Rep.  1033. 
Williams  v.  Boyd,  74  Ind.  286. 
Gates  v.  Hughes,  44  Wis.  332. 
Shepherd  v.  May,  115  U.  S.  505,  6  Sup.  Ct.  Rep.  119. 
Keller  v.  Ashford,  133  U.  S.  610,  10  Sup.  Ct.  Rep.  494. 
Bank  v.  Kirkwood,  172  111.  563,  50  N.  E.  Rep.  219. 
First  National  Bank  v.  Finck,  100  Wis.  446,  76  N.  W. 
Rep.  608. 


WILSON    v.    TEBBETTS.  321 

Shamburg  v.  Abbott,  112  Pa.  St.  6,  4  Atl.  Rep.  518. 

Hall  v.  Jones,  56  Ala.  493. 

Mullendore  v.  Wertz,  75  Ind.  431,  39  Am.  Rep.  155. 

Winston  v.  Taylor,  28  Mo.  82,  75  Am.  Dec.  112. 

Hahls  *v.  Mayer,  22  Am.  St.  Rep.  763  and  note  thereto. 

Davenport  v.  King,  63  Ind.  64. 

Neel  v.  Harding,  2  Met.  (Ky.)  247. 


CHAPTER  VIII. 

EFFECT  OF  INDEMNITY. 

a.    A  surety  or  guarantor  who  is  indemnified  by  principal  against 
loss  does  not  have  ordinary  rights  of  a  surety. 

WILSON  v.  TEBBETTS.     1874. 
29  Ark.  579. 

Appeal  from  Pulaska  Circuit  Court.  Hon.  JOHN  WHYTOCK, 
Circuit  Judge. 

WALKER,  J.  The  question  presented  in  the  second  instruction 
or  ruling  of  the  court,  asked  by  plaintiff  and  refused  by  the 
court,  distinctly  presents  the  question  as  to  whether  the  surety 
who  takes  from  his  principal  debtor  money  or  property,  whether 
by  pledge,  mortgage,  or  by  deed  of  trust,  sufficient  in  value  to 
indemnify  him  against  loss  by  reason  of  his  suretyship,  and 
whilst  the  property  or  estate  so  remains  in  his  hands,  can  resort 
to  the  statute  notice  to  compel  the  creditor  to  proceed  against 
the  principal  debtor. 

In  order  to  have  a  proper  understanding  of  the  question,  it  must 
be  kept  in  mind  that  the  right  to  redress,  as  between  the  prin- 
cipal and  surety,  is  strictly  equitable,  and  is  to  be  determined 
upon  principles  of  equity,  whether  proceeded  upon  in  a  court 
of  law  or  equity.  The  liability  of  a  surety,  although  direct  as 
between  himself  and  creditor,  is  contingent  as  between  himself 
and  his  principal;-  he  is  allowed  to  interpose  and  hasten  the 
collection  of  the  debt  only  upon  the  ground  that  delay  is  hazard- 
ous to  his  rights.  Although  bound  for  its  payment,  it  is  not 
properly  his  debt,  and  where  the  principal  debtor  places  money 

or  conveys  property  of  ample  value  to  satisfy  and  pay  the  debt, 
21 


322  EFFECT  OF  INDEMNITY. 

there  remains  no  equitable  ground  upon  which  a  claim  to  hasten 
the  collection  rests. 

From  the  time  the  property  or  money  passes  into  the  hands  of 
the  sureties,  the  relations  between  the  sureties  and  debtor  change, 
in  so  far  that  they  stand  in  the  attitude  of  principal  debtors. 
We  think  that  the  following  adjudicated  cases  fully  sustain  us 
in  this  conclusion. 

In  the  case  of  Chilton  &  Price  v.  Bobbins,  Paynter,  etc.,  4 
Ala.  223,  the  creditor  gave  to  his  principal  debtor  time  for  pay- 
ment, but  without  the  knowledge  or  consent  of  the  sureties.  The 
sureties  had  obtained  a  deed  of  trust  on  the  property  of  their 
principal  to  secure  them  from  loss  by  reason  of  their  suretyship. 
ORMAND,  J.,  who  delivered  the  opinion  of  the  court,  said :  ' '  The 
taking  by  the  sureties  of  a  deed  of  trust  from  the  principal 
debtor  to  secure  them  against  liability,  and  ample  for  that  pur- 
pose is,  in  effect,  an  appropriation  of  the  effects  of  the  prin- 
cipal to  the  payment  of  his  debt,  and  they  will  not  therefore 
be  permitted  to  urge  that  they  are  not  responsible."  The  case 
of  Moore  v.  Paine,  12  "Wend.  123,  is  even  stronger.  There  the 
principal  debtor  was  discharged  with  the  consent  of  the  creditor. 
But  the  sureties,  being  fully  indemnified  by  the  debtor,  were 
held  to  be  liable  to  the  creditor.  NELSON,  J.,  said:  "It  is  true 
that  a  release  of  one  of  two  or  more  obligors  to  a  bond  operates 
as  a  discharge  to  all ;  but  the  rule  is  provisional,  and  a  discharge 
under  the  insolvent  law  has  necessarily  no  such  effect.  .  .  . 
The  generally  acknowledged  and  familiar  principle  is,  that  when 
the  creditor  deals  with  his  debtor  so  as  to  alter  the  rights  of 
the  sureties,  or  in  any  way  impair  their  legal  remedies  against 
the  principal,  the  sureties  are  discharged.  .  .  .  But  it  is 
obvious  that  this  principle  has  no  application  to  this  case.  The 
sureties  received  from  the  debtor  the  whole  amount  to  become 
due  on  the  bond  in  question,  and  after  that  as  between  him 
and  them,  they  were  the  principals  and  owed  the  debt.  The 
discharge  of  Fine,  the  principal,  could  in  no  possible  way  inter- 
fere with  their  rights  or  liabilities,  so  long  as  they  held  in  their 
hands  a  complete  indemnity  against  the  bond,  and  he  is  not 
accountable  to  them  if  they  are  obliged  to  pay." 

In  the  case  before  us,  Van  Horn's  sureties  had  taken  a  deed 
of  trust  on  property  amply  sufficient  to  pay  the  debt  with  the 
power  to  sell  in  twenty  days.  Such  was  the  state  of  case  when 
Gregg  gave  notice  to  Wilson  to  sue  in  thirty  days.  The  statute 


WILSON    v.    TEBBETTS.  323 

•was  not  intended  to  be  used  to  oppress  the  debtor;  it  was  in- 
tended as  a  means  of  hastening  the  creditor  in  case  the  surety 
should  be  liable  to  loss  by  the  insolvency  of  his  principal.  It 
appears  from  the  evidence  that  this  property  remained  for 
about  eight  years  in  the  hands  of  the  sureties,  and  near  four 
years  before  it  was  rendered  comparatively  valueless  by  fire. 

As  a  matter  of  public  history  we  know  that,  for  a  part  of 
that  time,  no  sale  could  be  effected  on  account  of  civil  war. 

If  these  sureties  have  equitable  rights,  they  must  arise  out 
of  their  relations  with  Van  Horn,  and  how  far,  if  at  all,  after 
Van  Horn  had  conveyed  to  them  property  of  sufficient  value 
to  pay  the  debt,  which  they  had  permitted  to  remain  unsold 
for  several  years,  and  until  after  the  most  valuable  part  of  it 
had  been  destroyed  by  fire,  is  a  question  not  free  from  doubt. 
Be  this  as  it  may,  there  was  certainly  no  such  contingent  lia- 
bility on  the  part  of  the  sureties  to  loss  after  the  deed  of  trust 
had  been  executed,  or  at  the  time  Gregg  gave  notice  to  sue,  as 
to  entitle  them  to  a  discharge  from  such  liability  under  the  pro- 
visions of  the  statute,  and  it  is  error  in  the  court  below  to  refuse 
to  declare  the  law  as  asked  in  the  2d  proposition  of  plaintiff. 
From  the  conclusions  at  which  we  have  arrived,  none  of  the 
sureties  were  discharged,  nor  could  they,  by  notice  to  sue,  prop- 
erly ask  for  a  discharge  whilst  they  held  the  property  of  Van 
Horn  sufficient  in  value  to  pay  the  debt,  in  their  hands. 

We  have  not  overlooked  the  fact  that  Gregg's  name  appears 
to  have  been  omitted  in  the  deed  of  trust,  whether  by  accident 
in  copying  or  otherwise,  we  have  no  means  of  ascertaining,  ac- 
cording to  the  agreed  state  of  facts  upon  which  the  case  was 
submitted  to  the  court  below.  It  is  stated  that  Van  Horn  made 
the  deed  of  trust  at  the  instance  of  his  securities  on  the  note 
of  Wilson,  for  the  indemnity  of  such  sureties  from  loss,  and  the 
deed  requires  that  the  money  for  which  the  trust  property  should 
sell  be  paid  in  satisfaction  of  the  debt,  so  that  whether  his  name 
is  omitted  or  not,  the  legal  effect  of  the  deed  is  as  much  a  pro- 
tection to  him  as  to  the  other  sureties,  and  as  it  is  admitted  that 
the  property  conveyed  was  of  ample  value  to  pay  the  whole  debt, 
it  must  of  necessity  be  an  indemnity  to  all  of  them.  If  we  had 
held  Gregg  to  be  discharged,  it  would  have  been  proper  for  us 
to  determine  whether  the  securities  who  failed  to  give  notice  to 
sue,  and  were  consequently  not  discharged,  should  be  held  re- 
sponsible for  the  whole  debt,  or  only  for  so  much  of  it  as  they 


324  EFFECT  OF  INDEMNITY. 

would  have  been  bound  to  pay  had  none  of  the  sureties  been 
discharged;  but  holding,  as  we  do,  that  none  of  the  sureties  in 
this  case  were  discharged,  we  will  leave  this  question  to  be  set- 
tled when  it  properly  arises. 

Let  the  judgment  of  the  court  below  be  reversed  and  the 
cause  remanded. 


HIDDEN  v.  BISHOP.    1857. 
5  Rhode  Islatid  29. 

Assumpsit  against  the  defendant  as  guarantor  of  a  check 
for  $2,000,  dated  October  18,  and  payable  November  18,  1856, 
"to or  bearer,"  drawn  by  one  Doyle  on  the  Mercan- 
tile Bank  of  Providence,  and  discounted  by  the  plaintiff.  The 
case  having  been  submitted  to  the  court,  under  the  statute,  in 
fact  as  well  as  law,  it  appeared,  in  substance,  that  Doyle,  having 
procured  the  defendant  to  indorse  the  check  for  his  accommoda- 
tion, under  a  representation  that  it  was  to  be  deposited  with  the 
plaintiff  as  collateral  security  for  the  payment  of  a  note  of  P. 
Allen  &  Sons,  for  $2,114.10  at  six  months,  and  dated  October 
13,  1856,  which  the  plaintiff  had  agreed  to  discount,  on  the  day 
of  the  date  of  the  check  procured  the  same  to  be  discounted  by 
the  plaintiff,  at  the  same  time  depositing  said  note  of  P.  Allen 
&  Sons  with  the  plaintiff,  as  collateral  security  for  the  payment 
of  the  check;  that  at  the  time  of  this  transaction,  no  com- 
munication was  had  between  the  plaintiff  and  defendant,  nor 
did  Doyle  inform  the  plaintiff,  nor  did  it  appear  that  the  plaintiff 
at  that  time,  nor  until  after  the  18th  of  November,  1856,  had 
any  express  notice  that  the  defendant  relied  in  any  way  upon 
the  note  of  P.  Allen  &  Sons  for  his  protection  as  indorser  of 
the  check ;  that  the  plaintiff,  having  previously  discounted  other 
paper  for  Doyle  to  the  amount  of  about  $2,500,  then  overdue 
and  unpaid,  upon  which  the  plaintiff's  brother-in-law  and  two 
others  were  Doyle's  accommodation  indorsers,  on  the  17th  of 
November,  the  day  before  the  check  fell  due,  (Doyle  having 
stopped  payment  on  the  5th,)  by  Doyle's  direction,  and  at  the 
request  of  his  brother-in-law,  and  without  communication  with 
or  procuring  the  assent  of  the  defendant,  changed  the  applica- 
tion of  the  collateral  note  from  the  check  in  suit,  and  afterwards 


HIDDEN  v.  BISHOP.  325 

applied  the  proceeds  of  the  same,  when  collected,  to  the  other 
paper  discounted  by  him  for  Doyle  as  aforesaid.  It  also  ap- 
peared that  about  the  10th  of  November,  Doyle  applied  to  the 
defendant  to  allow  the  note  of  P.  Allen  &  Sons  to  be  applied 
to  other  paper  than  the  check,  the  defendant  having  become  ap- 
prised that  the  check  had  been  discounted  and  the  note  deposited 
as  collateral  to  it,  and  that  the  change  of  application  requested 
was  refused.  There  was  no  direct  evidence,  however,  that  this 
request  and  refusal  was  known  to  the  plaintiff.  The  check  was, 
at  maturity,  duly  presented  for  payment,  and  there  being  no 
funds  of  Doyle  in  the  Mercantile  Bank,  the  bank  refused  pay- 
ment, of  which  notice  was  given  to  the  defendant,  and  this  suit 
instituted  against  him  as  guarantor. 

AMES,  C.  J.  The  equity  which  entitles  a  surety  to  the  benefit 
of  all  securities  of  the  principal  deposited  with  the  creditor  to 
assure  payment  of  the  debt,  is  wholly  independent  of  any  con- 
tract between  the  surety  and  the  creditor,  and  indeed  of  any 
knowledge  on  the  part  of  the  surety  of  the  deposit  of  the  se- 
curities. A  striking  illustration  of  this  equity  is  afforded  by 
the  recent  case  of  Lake  v.  Bruton,  39  Eng.  L.  &  Eq.  443,  444; 
in  which,  there  having  been  a  contract  for  specific  indemnity 
to  the  surety,  it  was  contended,  that  upon  the  principle  of  "ex- 
pressio  unius,  exclusio  alterius,"  he  became  disentitled  to  the 
benefit  of  certain  other  security  deposited  by  the  principal  with 
the  creditor,  without  the  privity  of  the  surety.  The  Lords  Jus- 
tices held,  however,  that  for  the  very  reason  that  the  surety  had 
no  knowledge  of  the  deposit,  the  above  maxim  could  not  apply 
to  the  construction  of  the  surety's  contract  for  specific  indem- 
nity; and,  affirming  the  general  equity,  allowed  him  the  full 
benefit  of  the  other  security  deposited  by  his  principal  with  the 
creditor  without  his  knowledge.  In  such  case,  the  creditor  is 
regarded  as  a  trustee  of  the  security  deposited  with  him,  for 
the  benefit  of  all  parties  known  to  him  to  be  interested  in  it, 
and  is  bound  to  administer  the  trust  created  by  the  deposit, 
unless  discharged  by  the  surety,  in  his  relief,  as  well  as  in 
accordance  with  his  own  interests  and  those  of  the  principal. 
It  follows,  that  any  application  of  the  security  by  the  creditor 
to  other  purposes  than  those  marked  out  by  the  terms  of  the 
deposit,  or  any  decrease  of  its  value  by  means  of  his  negligence 
or  mistake,  discharges  the  surety  from  liability  to  him  in  that 
character,  to  the  extent  of  the  misapplication  or  decrease  of 


326  EFFECT  OF  INDEMNITY. 

value  thus  occasioned.  Matthew  v.  Crickett  and  others,  2 
Swanst.  190,  191 ;  Samuel  v.  Howarth,  3  Mer.  277,  278 ;  Law  v. 
The  East  India  Company,  4  Ves.  824 ;  2  Am.  Lead.  Cases,  Hare 
&  Wallace's  notes,  343  to  369,  inclusive,  for  American  cases. 

The  equities  of  a  surety  are  administered  by  courts  of  law, 
so  far  as  their  remedial  forms  will  permit,  as  well  as  by  courts 
of  equity;  and  applied,  as  they  must  be,  to  the  decision  of  the 
case  at  bar,  operate  with  great  force  to  discharge  the  defendant 
as  guarantor  of  the  check  here  sued.  The  defendant  is  not  only 
a  surety,  but  became  such,  in  the  matter  of  this  discount,  upon 
the  representation  of  his  principal  that  the  check  was  to  be 
merely  collateral  to  the  note  of  P.  Allen  &  Sons,  which  was 
for  an  amount  exceeding  it,  and  that  he  would  thus  be  protected 
from  any  loss  in  consequence  of  his  suretyship.  The  plaintiff 
was  apprised  of  the  character  in  which  the  defendant  engaged 
himself  to  him,  by  the  very  form  of  his  engagement,  as  well  as 
by  the  fact,  that  the  maker  of  the  check  procured  and  received 
the  benefit  of  the  discount ;  and,  under  the  circumstances,  might 
reasonably  have  presumed,  what  turns  out  to  be  true,  that  the 
defendant  indorsed  the  check  upon  faith  of  being  protected  in 
some  mode  by  the  note  of  P.  Allen  &  Sons.  The  application  of 
the  proceeds  of  that  note  by  direction  of  the  principal,  and 
without  the  assent  of  the  defendant,  to  other  paper  discounted 
by  the  plaintiff,  and  in  relief  of  other  sureties,  one  of  them  his 
near  connection,  was,  far  within  the  rule  so  well  and  wisely 
established  for  the  protection  of  sureties,  a  clear  breach  of  the 
trust  created  by  the  original  deposit  for  the  benefit  of  the  de- 
fendant. As  the  note  of  P.  Allen  &  Sons  has  been  paid,  and  in 
amount  exceeds  the  amount  of  this  indorsement,  the  equities 
between  these  parties  are  perfectly  administered  by  holding,  as 
we  do,  the  defendant  discharged  as  guarantor. 

Judgment  for  defendant. 


SILVEY  v.  DOWELL.    1870. 
53  III.  260. 

Appeal  from  the  Circuit  Court  of  Mason  county;    the  Hon 
Charles  Turner,  Judge,  presiding. 

Mr.  Chief  Justice  BREESE  delivered  the  opinion  of  the  court: 
This  was  a  bill  in  chancery  in  the  Mason  circuit  court,  exhibited 


SILVEY  v.  DOWELL.  327 

by  Joseph  Silvey  against  George  Dowell,  John  Welch,  J.  W. 
Stevenson  and  David  B.  Phelps,  the  sheriff,  to  enjoin  proceed- 
ings on  a  fi.  fa.  issued  on  a  judgment  obtained  by  Stevenson 
against  Dowell  and  Silvey,  and  which  Stevenson  had  assigned 
to  Dowell. 

It  appears  from  the  record,  that  Dowell  and  Silvey  were  se- 
''curities  on  a  note  which  John  "Welch  had  executed  to  William 
Claypool  for  two  hundred  and  fifty  dollars,  the  price  of  certain 
personal  property  Welch  had  bought  of  Claypool ;  that  by  agree- 
ment  between  Welch,  Dowell  and  appellant,  Silvey,  Welch  was 
to  execute  a  chattel  mortgage  to  Dowell  and  Silvey  on  the  prop- 
erty purchased,  and  some  other  property,  as  security  to  them, 
which  he  did  execute ;  that  soon  after  its  execution,  Dowell  took 
possession  of  the  property,  and  assumed  the  payment  of  Welch's 
note  to  Claypool;  that  Dowell  paid  one-half  the  note,  and  then 
procured  Stevenson  to  buy  the  note  of  Claypool  for  his,  Dowell's, 
benefit,  he,  Dowell,  furnishing  the  money  for  that  purpose. 
Stevenson  bought  the  note,  paying  full  value  therefor,  and  had 
it  assigned  to  himself,  and  brought  an  action  thereon  against 
Dowell  and  appellant,  in  his  own  name,  and  recovered  a  judg- 
ment against  them  for  on^  hundred  and  forty-seven  dollars  nine- 
teen cents  and  costs. 

It  is  the  execution  issued  on  this  judgment,  and  which  was 
levied  on  appellant's  personal  property,  that  was  sought  to  be 
enjoined. 

Though  the  defendants,  Dowell  and  Stevenson,  in  their  an- 
swers to  the  bill,  deny  the  facts  above  stated,  yet  they  were 
abundantly  proved  by  appellant,  and  by  Stevenson  himself,  who 
was  sworn  and  testified  in  the  cause. 

Had  these  facts  been  known  to  appellant,  and  presented  as  a 
defense  to  the  action  at  law  on  the  note,  they  could  not  have 
availed,  for  he  was  doubtless,  liable  on  the  note  to  the  holder 
by  assignment.  But  when,  as  it  now  appears,  his  co-defendant 
and  co-maker  of  the  note,  Dowell,  was  the  party  beneficially 
interested  in  the  note,  and  who  had  been  put  in  funds  by  Welch, 
the  principal  debtor,  sufficient  to  pay  it,  and  had  assumed  to 
pay  it,  the  injustice  of  the  proceeding  as  against  appellant,  be- 
comes manifest,  and  is  so  glaring  as  to  require  the  interposition 
of  a  court  of  equity. 

Dowell  having  received  full  indemnity  himself,  for  becoming 
security  for  Welch,  and  having  assumed  the  payment  of  the 


328  EFFECT  OF  INDEMNITY. 

note,  which  he  was  morally  and  equitably,  if  not  legally  bound 
to  pay,  it  became  his  own  debt,  and  for  which  appellant  should 
not  be  responsible. 

It  is  against  equity  and  good  conscience  that  he  should  be  com-' 
polled  to  pay  a  debt  which  his  co-surety  assumed  to  pay  him- 
self, in  consideration  of  funds  having  been  placed  in  his  hands 
for  such  purpose. 

The  case  is  too  plain  for  argument.  The  bill  of  complainant 
should  not  have  been  dismissed.  For  the  error  in  dismissing 
it,  the  decree  must  be  reversed  and  the  cause  remanded. 

Decree  reversed. 


CRIM  v.  FLEMING.     1884. 
101  Ind.  154. 

From  the  Hamilton  Circuit  Court. 

ELLIOTT,  J.  The  material  averments  of  the  first  paragraph  of 
the  appellee 's  complaint  may  be  thus  summarized :  On  the  13th 
day  of  March,  1877,  William  Crim  obtained  judgment  against 
Thomas  J.  Fleming  as  principal  and  the  appellee  as  surety  for 
$1,389.79.  The  principal  debtor  was  the  clerk  of  the  county 
of  Madison  from  October,  1870,  to  the  15th  day  of  October, 
1874,  and  there  was  due  him  as  fees  on  the  12th  day  of  April, 
1878,  $4,000.  On  that  day  these  fees  were  by  him  assigned  to 
Crim  by  the  following  written  instrument :  "For  value  received 
I  hereby  assign  to  "William  Crim,  of  Anderson,  Indiana,  all 
unpaid  fees  due  me  as  the  clerk  of  the  Madison  Circuit  Court, 
as  the  same  are  taxed  and  charged  upon  the  fee-records  of  said 
court,  hereby  authorizing  said  William  Crim  to  receive  and 
receipt  for  said  fees  as  the  same  may  be  paid. ' '  This  instrument 
was  entered  of  record  in  the  order-book  of  the  Madison  Circuit 
Court  on  the  day  it  was  executed.  At  the  time  the  assignment 
was  made  the  uncollected  fees  due  Thomas  J.  Fleming  were  of 
the  value  of  more  than  $2,000.  The  assignment  was  made  as  a 
security  for  the  judgment  on  which  the  appellee  was  surety,  and 
was  accepted  by  the  appellant  as  additional  security  for  its 
payment.  In  1880  the  appellant  assigned  back  to  Thomas  J. 
Fleming  all  the  fees,  and  did  it  without  the  knowledge  of  the 
appellee. 


CRIM  v.  FLEMING.  329 

The  second  paragraph  differs  from  the  first  in  this,  that  it 
does  not  aver  that  the  fees  were  assigned  back  to  Thomas  J. 
Fleming.  It  does,  however,  aver  that  Grim  received  of  the  fees 
the  sum  of  $471.53,  and  that  he  suffered  Thomas  J.  Fleming  to 
collect  the  fees  to  the  amount  of  $500,  and  that  Grim  neglected 
to  collect  the  remainder  of  the  fees,  and  suffered  those  owing 
them  to  become  insolvent.  It  is  also  averred  that  "The  said 
assignment  was  made  for  a  security  on  said  judgment,  and  to  be 
held  and  collected  by  said  William  Grim  and  paid  on  said  judg- 
ment, and  William  Grim  accepted  the  assignment  of  said  fees  as 
security  on  said  judgment,  and  to  collect  and  pay  the  same 
thereon."  The  insolvency  of  the  assignor  and  principal  debtor 
is  also  averred. 

The  release  of  securities  held  by  the  creditor  releases  the 
surety  to  the  extent  of  the  value  of  the  securities  released.  The 
first  paragraph  of  the  complaint  is  good,  for  the  reason  that  it 
shows  the  release  of  securities  exceeding  in  value  the  amount  of 
the  debt  due  the  creditor. 

The  second  paragraph  of  the  complaint  is  good,  for  the  reason 
fhat  it  shows  that  the  creditor  undertook  to  collect  the  fees 
assigned  to  him,  and  that  he  negligently  failed  to  do  so.  The 
complaint  shows  more  than  mere  passiveness  on  the  part  of  the 
creditor,  for  it  shows  that  he  permitted  the  principal  debtor  to 
collect  the  fees  and  appropriate  them  to  his  own  use.  It  is  quite 
clear  that  a  creditor  who  receives  from  the  principal  debtor 
securities  which  he  undertakes  to  collect  and  apply  on  the  debt 
is  guilty  of  positive  negligence  if  he  surrenders  them  to  the 
principal  debtor,  and  permits  him  to  collect  and  appropriate 
the  proceeds.  Equity  will  not  suffer  the  rights  of  the  surety 
to  be  thus  frittered  away.  There  was  here  an  express  agreement 
to  collect  and  apply  the  money  to  the  payment  of  the  debt,  and 
it  was  a  violation  of  this  agreement  to  permit  the  principal 
debtor  to  regain  possession  of  the  securities  and  use  them  for 
his  own  benefit.  The  case  falls  within  the  rule,  that  "The 
surety  is  discharged  where  collateral  securities  held  by  the 
creditor  from  the  principal  debtor  are  voluntarily  returned  with- 
out the  consent  of  the  security,  at  least  to  the  value  of  such  col- 
lateral securities."  Colebrooke  Collateral  Securities,  311,  sec- 
tion 240. 

The  second  paragraph  of  the  answer  alleges  that  the  assign- 
ment was  ineffective,  because  not  entered  on  or  attached  to  the 


330  EFFECT  OF  INDEMNITY. 

judgment-docket  or  fee-book.  This  theory  can  not  be  sustained. 
The  assignment  was  an  equitable  one,  and  operated  to  vest  in  the 
assignee  the  equitable  title,  and  this  is  sufficient.  Burson  v. 
Blair,  12  Ind.  371 ;  Scobey  v.  Finton,  39  Ind.  275 ;  Cravens  v. 
Duncan,  55  Ind.  347;  Adams  v.  Lee,  82  Ind.  587.  The  ques- 
tion here  is/ not  as  to  the  rights  of  the  debtor,  but  as  to  the  rights 
of  the  surety,  and  section  604  of  the  statute  has  no  application 
whatever. 

The  complaint  avers,  and  the  answer  admits,  because  the  aver- 
ment is  not  denied,  that  the  fees  were  due  the  appellee's  prin- 
cipal, and  no  question  is  presented  as  to  his  right  to  assign 
them. 

The  fourth  paragraph  of  the  answer  purports  to  answer  so 
much  of  the  second  paragraph  of  the  complaint  as  seeks  to  re- 
cover for  the  fees  and  cost  collected  by  Thomas  J.  Fleming,  and 
it  is  alleged  that  the  assignment  was  not  entered  on  the  judg- 
ment docket  nor  attached  thereto;  that  the  persons  owing  the 
fees  paid  them  to  Thomas  J.  Fleming  without  the  knowledge 
of  the  appellant.  We  regard  this  paragraph  as  clearly  bad. 
As  the  appellant  had  accepted  the  assignment  and  agreed  to 
collect  the  fees,  he  was  bound  to  take  such  steps  as  were  reason- 
ably necessary  to  make  the  assignment  effective.  "A  creditor 
holding  collateral  securities  is  chargeable  with  a  trust  concerning 
the  same  for  the  benefit  of  the  surety,  where  he  has  notice  of 
the  existence  of  such  relation  as  between  the  parties  to  the 
note."  Colebrooke  Collateral  Securities,  section  239.  When  we 
add,  as  must  be  done  in  this  case,  to  the  duty  created  by  law 
the  duty  created  by  the  express  agreement  of  the  creditor  to  col- 
lect the  collateral  security  assigned  him,  it  seems  clear  that  his 
failure  to  use  reasonable  diligence  to  make  the  security  available 
should  operate  to  release  the  surety.  The  effect  of  such  an 
agreement,  when  combined  with  the  general  duty  imposed  by 
law,  is  to  assure  the  surety  that  the  creditor  will  do  what  is  rea- 
sonably necessary  to  make  the  security  effective,  and  that  if 
there  is  a  violation  of  the  duty  created  by  contract  and  by  law, 
and  consequent  loss,  the  surety  is  discharged.  The  surety  has  a 
right  to  rely  upon  the  creditor's  agreement,  and  to  permit  the 
latter  to  disregard  it,  would  operate  to  ensnare  and  mislead  the 
former.  We  do  not  believe  that  a  surety  is  bound  to  notify  the 
creditor  to  keep  his  engagement,  but  do  believe  that  the  creditor 
must  perform  it  without  notice.  We  can  perceive  no  reason  for 


CRIM  v.  FLEMING.  331 

discriminating  such  an  agreement  from  any  other,  and  we  know 
of  no  principle  that  denies  one  contracting  party  compensation 
for  a  breach  of  a  contract,  because  the  other  party  was  not 
prodded  into  performing  it  by  notice.  There  is  a  stubborn  con- 
flict in  the  authorities  as  to  the  soundness  of  the  doctrine, 
adopted  in  Philbrooke  v.  McEwen,  29  Ind.  347,  that  a  creditor 
who  accepts  a  mortgage  as  a  collateral  security  does  not  release 
a  surety  by  an  omission  to  record  it  within  the  time  required  by 
law.  Brandt  Suretyship  &  Guaranty,  sections  384,  385,  386, 
387;  Colebrooke  Collateral  Securities,  section  241.  But  the 
case  in  hand  is  not  within  that  rule,  for  here  there  was  an 
express  agreement  to  collect,  and  this  makes  an  essential  differ- 
ence, for  a  breach  of  an  agreement  can  not  be  justly  regarded  as 
inaction  or  passive  neglect.  In  stating  the  rule  declared  by 
the  authorities  which  support  the  doctrine  of  Philbrooks  v. 
McEwen,  supra,  the  author  last  referred  to  uses  this  language: 
"In  the  absence  of  an  express  agreement  to  use  diligence,  or  of 
such  special  circumstances  as  to  render  prompt  action  of  the 
creditor  an  absolute  duty,  the  mere  inaction  or  passive  delay, 
or  omission  of  the  creditor  to  enforce  the  collection  of  collateral 
securities  held  by  him  from  the  principal  debtor,  is  not  sufficient 
of  itself  to  discharge  or  release  a  surety  from  his  obligation  to 
pay  the  debt  upon  default."  Colebrooke  Collateral  Securities, 
section  241.  It  is  evident  from  this  statement  that  the  fact  that 
there  was  an  express  agreement  to  collect  the  securities  assigned 
by  the  creditor  takes  the  case  out  of  the  general  rule,  for  it  adds 
a  new  element  of  controlling  importance. 

The  seventh  paragraph  of  the  answer  avers  that  Thomas  J. 
Fleming  fully  paid  to  the  plaintiff  the  whole  of  the  judgment, 
principal,  interest  and  costs,  before  the  commencement  of  the 
suit.  In  our  opinion  this  answer  is  good.^£lf  the  surety  had 
been  paid  the  full  amount  for  which  he  was  liable,  he  could  not 
be  injured  by  any  wrong  or  omission  of  the  creditor.  The  money 
received  by  him  from  his  principal  indemnified  him,  and  no 
matter  what  the  creditor  did  with  the  collateral  securities,  he 
could  lose  nothing.  The  money  received  was  his  only  as  an  in- 
demnity, and  if  he  should  be  compelled  to  use  it  in  paying  the 
creditor,  he  would  lose  nothing.  Where  a  surety  is  indemnified 
by  the  principal,  he  is  not  released  by  any  indulgence  granted 
by  the  creditor,  nor  by  any  negligence  on  his  part  in  regard  to 
the  collection  of  the  collateral  securities  assigned  to  him  by  the 


332 


RIGHTS  OF  SUCCESSIVE  SURETIES. 


principal  debtor.  Story  Eq.  Juris.  (10th  ed.)  section  502  b. 
The  authorities  upon  this  subject  go  very  far,  for  it  is  said:  "A 
surety  who  is  fully  indemnified  is  not  discharged  by  the  release 
of  the  principal.  In  such  case  the  surety  himself  occupies  the 
position  of  a  principal."  Brandt  Suretyship  &  Guaranty,  sec- 
tion 123.  Payment  to  the  surety  by  the  principal  is  the  most 
ample  indemnity  that  could  well  be  made,  for,  with  the  money 
in  his  hands,  the  surety  is  absolutely  safe  from  loss,  and  no  act 
that  the  creditor  can  do  can  injure  him. 

If,  as  the  answer  avers  and  the  demurrer  admits,  the  money 
was  paid  by  the  principal  to  the  surety  on  the  judgment,  the  only 
just  claim  that  the  latter  can  have  to  it  is  that  which  accrues  to 
him  in  his  character  of  surety,  and  in  equity  he  really  holds  the 
money  for  the  benefit  of  the  creditor,  to  whom  he  occupies  the 
position  of  a  debtor.  It  is  logically  inconceivable  that  any  acts 
of  the  creditor  could  cause  him  injury,  for  no  additional  burden 
or  risk  can  be  imposed  on  him  while  he  has  the  money  to  pay 
the  debt  in  his  own  hands. 

It  is  too  plain  to  be  fairly  debatable  that  the  defence  pleaded 
is  not  admissible  under  the  general  denial. 

Judgment  reversed. 


CHAPTER  IX. 

RIGHTS  OF  SUCCESSIVE  SURETIES  FOR  SAME  DEBT. 

Sureties  becoming  successively  liable  for  same  debt,  by  dis- 
tinct contracts,  are  each  and  all  liable  to  the  creditor,  but 
as  between  themselves  the  last  is  primarily  liable  for  whole 
debt. 

HINCKLET  v.  KREITZ.     1874. 

55  N.  T.  583. 

Appeal  from  judgment  of  the  General  Term  of  the  Superior 
Court  of  the  City  of  New  York,  affirming  a  judgment  in  favor 
of  plaintiff  entered  upon  a  verdict.  (Reported  below,  4  Jones 
&  Spencer  413.) 

This  action  was  brought  upon  an  undertaking  executed  by  the 
defendants,  as  sureties,  on  an  appeal  to  the  General  Term  of  the 
Court  of  Common  Pleas,  from  a  judgment  entered  in  an  action 
in  said  court  in  favor  of  one  Frederick  Dennstaedt,  plaintiff, 
against  Carl  Anschurtz,  defendant. 


HINCKLEY  v.  KREITZ. 

The  undertaking  was  to  the  effect  "that  the  said  appellant  will 
pay  all  costs  and  damages  which  may  be  awarded  against  him 
on  said  appeal,  not  exceeding  $500;  and  do  also  undertake  that 
if  the  said  judgment  so  appealed  from,  or  any  part  thereof,  be 
affirmed,  or  the  appeal  be  dismissed,  the  said  appellant  will  pay 
the  amount  directed  to  be  paid  by  the  said  judgment,  or  the  part 
of  such  amount  as  to  which  the  said  judgment  shall  be  affirmed, 
if  it  be  affirmed  only  in  part,  and  all  damages  and  costs  which 
shall  be  awarded  against  said  appellant  on  the  said  appeal." 

The  judgment  appealed  from  was  affirmed  by  the  General  Term, 
and  the  defendant  took  a  further  appeal  from  such  judgment 
of  affirmance  to  the  Court  of  Appeals,  giving  a  new  undertaking, 
with  Johann  P.  Schuchman  and  Nicholas  Muller  as  sureties. 
The  Court  of  Appeals  affirmed  the  judgment  of  the  General 
Term,  and  remitted  the  record  to  the  court  below,  where  judg- 
ment upon  the  remittitur  was  duly  entered.  Dennstaedt  as- 
signed the  judgments  to  one  Gunther,  who  assigned  them  to 
one  Elwood,  and  he  to  the  plaintiff.  The  circumstances  attend- 
ing these  assignments  are  sufficiently,  stated  in  the  opinion. 

The  plaintiff  in  this  action  claimed  all  the  damages  and  costs 
in  the  action,  including  the  costs  of  the  appeal  to  the  Court  of 
Appeals,  and  the  court  directed  a  verdict  for  the  amount  so 
claimed,  which  was  rendered  accordingly. 

CHURCH,  Ch.  J.  The  first  question  is  whether  the  sureties 
upon  the  undertaking,  upon  the  appeal  from  the  Special  to  the 
General  Term  of  the  Common  Pleas,  are  liable  for  the  costs  of 
appeal  from  the  General  Term  to  the  Court  of  Appeals.  The 
undertaking,  after  reciting  that  the  defendant  intended  to  ap- 
peal to  the  General  Term,  was  conditioned,  among  other  things, 
that  the  appellant  should  pay  ' '  all  costs  and  damages  which  may 
be  awarded  against  him  on  said  appeal."  The  judgment  was 
affirmed  at  the  General  Term  and  an  appeal  taken  to  the  Court 
of  Appeals,  upon  which  an  undertaking  was  executed  and  per- 
fected, by  other  persons,  as  sureties,  according  to  sections  334 
and  335  of  the  Code.  The  costs  and  damages  in  the  Court  of 
Appeals  are  not  within  the  terms  of  the  undertaking,  nor  was  an 
appeal  to  the  Court  of  Appeals  necessary  to  procure  an  affirm- 
ance of  the  judgment  in  the  General  Term,  and  upon  what  prin- 
ciple the  liability  of  sureties  can  be  thus  extended,  and  their  con- 
tract enlarged,  it  is  difficult  to  comprehend.  The  learned  judge 
who  delivered  the  opinion  in  the  court  below,  was  clearly  right 


334  RIGHTS  OF  SUCCESSIVE  SURETIES. 

in  his  opinion  that  the  defendants  were  not  liable  for  these  costs 
as  an  original  question,  but  he  erred  in  supposing  that  the  ad- 
judications of  this  court,  and  other  courts,  had  settled  the  ques- 
tion in  favor  of  such  liability.  The  principal  case  in  this  court 
relied  upon,  is  Robinson  v.  Plimpton  (25  N.  Y.  484).  In  that 

.LI  '  i   V       .LI        V<  i     rn    "•••"   'ji    '       •       i 

case,  upon  the  appeal  to  the  General  Term,  the  judgment  was 
reversed  by  that  court;  but  upon  an  appeal  to  the  Court  of 
Appeals,  the  judgment  of  the  General  Term  was  reversed,  and 
that  of  the  court  below  affirmed,  and  the  sureties,  upon  the 
appeal  to  the  General  Term,  were  held  not  discharged  by  reason 
of  the  reversal  in  the  first  instance,  but  were  held  liable,  and 
this  was  upon  the  express  ground  that  the  proceedings  in  the 
Court  of  Appeals  were  necessary,  and  had  the  effect  to  obliterate 
the  erroneous  judgment  of  the  General  Term,  and  to  procure 
an  affirmance  in  that  court,  and  that,  when  the  affirmance  was 
procured,  the  contingency  upon  which  the  liability  of  the  sure- 
ties depended  had  occurred,  and  that  it  was  immaterial  whether 
the  first  erroneous  action  of  the  General  Term  was  corrected  by 
that  court,  as  it  clearly  had  power  to  do,  or  by  the  mandate  of 
a  higher  court.  The  reversal  was  expunged,  and  held  for 
nothing.  It  was  as  though  such  action  had  not  been  taken. 
The  General  Term  had  power  to  do  this  itself.  If  it  had,  and 
upon  a  rehearing  had  affirmed  the  judgment,  it  would  have  been 
too  clear  for  cavil  that  the  contingency  of  liability,  viz.,  an  af- 
firmance by  the  General  Term,  had  occurred.  That  it  was  done 
by  the  command  of  a  higher  tribunal  did  not  change  its  effect, 
and  this  court  held,  and  we  think  properly,  that  substantially 
for  the  purpose  of  enforcing  the  undertaking,  it  was  the  same 
as  though  the  General  Term  had  decided  right  in  the  first  in- 
stance. This  decision  has  no  bearing  upon  the  question  in  the 
present  case,  and  the  observations  of  the  learned  judges  who 
delivered  opinions,  when  applied  to  the  facts,  have  no  relevancy 
to  the  facts  of  this  case.  Here  the  judgment  was  affirmed  at 
General  Term.  The  liability  of  the  defendants  was  fixed. 
They  had  agreed  to  pay  that  judgment,  and  the  costs  upon  that 
appeal.  They  did  not  agree  to  pay  the  costs  upon  an  appeal 
by  the  defendant  to  any  other  court.  When  a  further  appeal 
was  taken  to  the  Court  of  Appeals,  the  statute  required  that  a 
new  undertaking  should  be  given  for  the  costs  in  that  court, 
unless  waived  by  the  plaintiff.  If  given,  that  undertaking,  in 
addition  to  the  responsibility  of  the  defendant,  was  his  only 


HINCKLEY  v.  KREITZ.  335 

reliance  for  the  costs  in  the  Court  of  Appeals;  if  waived  by 
him,  the  responsibility  of  the  defendant  was  his  only  security. 

Bennett  v.  Brown  (20  N.  Y.  99)  was  the  case  of  a  bond 
given  upon  issuing  an  attachment  against  non-resident  debtors, 
conditioned  to  pay  all  damages  and  costs  which  they  should 
sustain  by  reason  of  issuing  the  attachment  if  the  plaintiff 
should  fail  to  recover  judgment  thereon.  A  judgment  was  ob- 
tained before  the  justice,  but  it  was  reversed  on  certiorari  to 
the  Common  Pleas.  The  court  held  the  defendant  liable  for 
the  judgment  for  costs  in  the  Common  Pleas.  The  terms  of 
the  bond  did  not  restrict  the  liability  to  a  failure  to  recover 
before  the  justice,  but  extended  to  a  final  recovery  in  the  action, 
and  when  the  justice 's  judgment  was  reversed,  it  was  as  though 
never  rendered.  The  principle  of  the  decision  is  analogous  to 
that  in  25  New  York  (supra).  Gardner  v.  Barney  (24  How. 
Pr.  467)  was  similar  in  facts  to  Robinson  v.  Plimpton  (supra), 
and  Smith  v.  Grouse  (24  Barb.  433)  was  similar  in  principle. 
Tibbies  v.  O'Connor  (28  Barb.  538 )±  was  upon  an  undertaking 
in  behalf  of  the  plaintiff  in  an  action  upon  a  claim  and  delivery 
of  personal  property  conditioned,  among  other  things,  for  the 
payment  of  such  sum  as  might  "for  any  cause"  be  recovered 
in  the  action.  The  court  held  that  the  costs  recovered  upon 
appeal  to  the  General  Term  were  covered  by  the  terms  of  the 
undertaking,  as  they  clearly  were.  Ball  v.  Gardner  (21  "Wend. 
270)  and  Traver  v.  Nichols  (7  Wend.  434)  were  like  Bennett 
v.  Brown  (supra).  Neither  of  these  authorities  touch  the  point 
involved  here,  and  we  have  been  referred  to  no  authority  holding 
that  when  the  judgment  was  affirmed  at  the  General  Term, 
and  the  liability  of  the  sureties  upon  the  appeal  to  that  court 
fixed,  any  further  liability  could  be  imposed  upon  them  by 
appeals  to  other  courts.  Such  a  result  would  enlarge  the  con- 
tract and  violate  well  known  elementary  principles;  and  the 
distinction  between  such  a  case,  and  the  cases  cited  is  manifest. 

If  this  was  the  only  point  in  the  case  a  new  trial  would  be 
unnecessary,  as  the  amount  of  the  costs  in  the  Court  of  Appeals 
could  be  deducted,  and  the  judgment  affirmed  for  the  balance, 
but  various  other  questions  are  raised  by  the  appellant  the  most 
important  of  which  is  that  the  sureties  upon  the  appeal  to  the 
Court  of  Appeals  were  released  by  a  former  owner  of  the  judg- 
ment, and  that  such  release  operated  to  discharge  the  defendants 
from  liability  upon  the  first  undertaking.  The  judge  at  Circuit 


336  RIGHTS  OF  SUCCESSIVE  SURETIES. 

directed  a  verdict,  and  if  the  fact  of  release  was  established, 
or  if  tlie  evidence  tended,  to  establish  it,  and  it  constituted  a 
defence,  it  was  error  to  direct  a  verdict.     The  question  involves 
the  relative  liability  of  the  sureties  upon  the  appeal  to  the 
General  Term,  and  the  sureties  upon  the  appeal  to  the  Court  of 
Appeals,  as  between  themselves.     The  original  plaintiff  in  the 
judgments   assigned  them  to   Gunther,   the   latter  to   Elwood 
and  he  to  the  plaintiff.     The  evidence  tends  to  show  that  Gunther 
acted  for  the  benefit  of  Schuchman  and  Muller  the  sureties  in 
the  undertaking  upon  the  appeal  to  the  Court  of  Appeals,  and 
that  they  furnished  the  money  to  pay  the  original  plaintiff  $400 
and  to  pay  Elwood,  the  attorney,  $500.     The  first  agreement 
between   Gunther   and   Elwood   confirms   this   view.     By   that 
agreement  Elwood  was  to  receive  the  $500  in  full  for  the  costs 
and  counsel  fee  up  to  that  time,  and  for  conducting  the  case 
through  the  Court  of  Appeals.     It  was  also  agreed,  that  in  case 
any  money  should  be  collected  of  the  defendants  or  of  the  "prior 
sureties,"  Elwood  was  to  have  one-half  up  to  $500,  and  one- 
third  above  that  sum ;  and  it  was  expressly  agreed  that  no  pro- 
ceedings should  be  taken  against  Schuchman  and  Muller  upon 
the  undertaking  on  the  appeal  to  the  Court  of  Appeals.     It  is 
difficult  to  find  a  reason  for  such  an  agreement,  except  from 
the  fact  inferable  from  the  other  evidence  that  Gunther  was 
acting  in  behalf  of  those  sureties.     The  second  agreement  shows 
this  more  strongly.     By  this  Gunther  assigned  the  judgments  to 
Elwood,  and  the  latter  expressly  released  Schuchman  and  Muller 
from  all  liability  by  reason  of  their  undertaking,  and  Gunther 
covenanted,  "on  the  part  of"  Schuchman  and  Muller,  that  they 
would  make  no  claim  against  Elwood  or  the  original  plaintiff 
for  the  money  paid  to  either  of  them;  and  this  agreement  was 
witnessed  by  Muller,  thus  evincing  his  assent  and  authority. 
From  these  agreements  and  the  other  evidence  it  is  quite  clear~A 
/  f  that  Gunther  acted  as  the  friend  and  agent  for  the  last  sureties, 
and  that  their  object  was  to  relieve  themselves  from  liability 
upon  their  undertaking.     But  whether  this  was  so  or  not  the 
effect  of  the  transaction  was  to  release  them.     Elwood  could 
not,  against  his  own  covenant,  have  made  any  claim  against 
them.     The  only  title  transferred  to  him  was  the  judgment 
against  the  defendant  therein  and  a  claim  against  the  "prior 
sureties,"  upon  condition  that  the  sureties  to  the  Court  of  Ap- 
peals should  be   released.     This  plaintiff  could   acquire   from 


HINCKLET  v.  KREITZ.  337 

him  nothing  more.  He  stands  in  Elwood's  place  and  is  subject 
to  any  defence  valid  against  Elwood,  so  that,  in  any  view  for 
the  purposes  of  this  action,  .the  last  sureties  must  be  regarded 
as  released  and  discharged,  and  the  question  is,  what  effect 
this  had  upon  the  liability  of  these  defendants  upon  the  under- 
taking to  the  General  Term. 

As  before  observed,  when  the  judgment  was  affirme'd  at  the 
General  Term  the  liability  of  the  defendants  was  fixed.  The 
defendant,  their  principal,  had  a  right  of  appeal  to  the  Court 
of  Appeals ;  but  to  do  so  it  was,  in  the  first  place,  indispensable 
to  furnish  sureties  to  an  undertaking  for  $500  to  secure  the 
costs  (unless  waived  by  the  plaintiff)  and  to  stay  proceedings, 
to  an  undertaking  to  pay  the  judgment  if  affirmed.  Schuchman 
and  Muller  became  such  sureties  and  thereby  prevented  the 
collection  of  the  judgment  until  the  determination  of  the  appeal 
which  might  be  for  several  years.  But  for  their  intervention 
the  judgments  may  have  been  collected  of  the  defendant  therein. 
They  secured  the  delay  by  agreeing  to  pay  the  judgment.  The 
present  defendants  may  have  been  injured  and  justice  would 
seem  to  demand,  that  between  parties  thus  situated  the  primary 
liability  should  rest  upon  those  who  intervened  to  procure  the 
delay.  It  is  a  general  rule  that  sureties,  upon  payment,  are 
entitled  to  be  substituted  to  all  the  rights  and  remedies  of  the 
creditor  as  to  any  fund,  lien  or  equity  to  which  the  latter  may 
resort  for  payment,  and  in  equity  are  entitled  to  the  benefits 
of  any  judgment  or  instrument  against  the  principal.  (1  Comst. 
595;  1  Story's  Eq.  Jur.  §449,  note  5,  and  cases  cited.)  This 
right  of  substitution  does  not  depend  upon  contract  but  upon 
principles  of  equity  arising  out  of  the  relation  of  principal  and 
surety,  and  the  obligation  of  the  former  to  indemnify  the  latter 
against  loss.  (Id.)  Upon  the  affirmance  of  the  judgments  at 
the  General  Term,  these  defendants  had  a  right  to  pay  the  same 
as  sureties,  and  to  be  substituted  to  the  rights  of  the  plaintiff 
in  the  judgments  and  to  enforce  the  same  against  the  defendant 
therein.  In  that  case,  upon  appeal  to  the  Court  of  Appeals, 
the  undertaking  would  necessarily  inure  to  the  benefit  of  the 
defendants  as  equitable  owners  of  the  judgments,  and  upon 
affirmance  in  the  Court  of  Appeals  they  could  enforce  it  against 
the  second  sureties.  The  latter  agreed,  upon  the  contingency 
of  affirmance,  to  stand  in  the  place  of  their  principal,  the  de- 
fendant in  the  judgments,  and  to  pay  the  judgments.  In  effect 
22 


338  RIGHTS  OF  SUCCESSIVE  SURETIES. 

they  became  sureties  to  and  not  for  these  defendants,  and,  hence, 
would  not  have  been  entitled,  upon  payment,  to  substitution 
against  them.  (Armstrong's  Appeal,  5  W.  &  S.  352.) 

In  Parsons  v.  Briddock  (2  Vern.  608)  the  principal  in  a 
bond  was  sued  and  arrested,  and  gave  bail.  The  sureties  in 
the  original  bond  having  been  sued  and  paid  the  judgment,  it 
was  decreed  that  the  judgment  against  the  bail  be  assigned  to 
them  to  reimburse  them  what  they  had  paid.  This  decision 
seems  to  have  been  questioned  by  the  Lord  Chancellor,  in  Hodg- 
son v.  Shaw  (3  Myl.  &  K.  182),  as  being  in  conflict  with  Copis 
v.  Middleton  (1  T.  &  Russ.  221)  upon  the  point  of  a  right  to 
the  assignment  of  the  judgment,  a  point  which  has  been  con- 
siderably controverted  in  England,  but  which  in  this  country 
has  been  settled  against  the  doctrine  of  Copis  v.  Middleton,  and 
in  favor  of  the  right  of  sureties  to  the  benefit  of  the  instrument 
or  specialty  paid.  (4  J.  Ch.  129;  1  Story's  Eq.  Juris.  §499  b, 
note  5  and  cases  cited.)  But  this  difference  does  not  affect  the 
point  involved  here  as  to  the  superior  obligation  between  the 
two  sets  of  sureties  to  pay  this  debt.  It  only  applies  to  the 
remedy  and  not  the  relative  obligation. 

In  Pennsylvania,  under  a  statute  authorizing  a  stay  of  execu- 
tion for  a  year  upon  giving  security,  it  has  been  repeatedly  held 
that  the  surety  for  the  original  debt,  upon  payment,  is  entitled 
to  the  remedy  of  the  creditor  against  the  surety  upon  the  stay. 
(Burns  v.  Huntington  Bk.,  1  Penn.  395 ;  Pott  v.  Nathans,  1  TV. 
&  S.  155;  Schnitzel's  Appeal,  49  Penn.  St.  23.)  The  reasoning 
in  these  cases  applies  to  this,  that  the  later  surety  suffers  no 
injustice  in  being  obliged  to  do  what  he  has  agreed;  and  that 
his  equities  are  subordinate  to  those  of  the  original  surety,  be- 
cause his  interposition  may  have  been  the  means  of  involving 
the  first  surety  in  ultimate  liability  to  pay.  McCormick's  Admrs. 
v.  Irwin  (35  Penn.  St.  Ill)  was  a  case  involving  the  equities 
between  sureties,  and  the  same  principle  was  recognized  and 
adopted.  We  think,  upon  principle  and  authority,  that  the 
later  sureties  are  primarily  liable  as  between  them  and  the  first 
sureties,  and  it  follows  that  the  release  of  such  later  sureties  by 
the  creditor  discharged  the  defendants,  because  it  deprived 
them  of  a  remedy  over  to  which  they  would  otherwise  have  been 
entitled.  The  rule  is  comprehensively  stated  by  Story :  "That 
if  a  creditor  does  any  act  injurious  to  the  surety,  or  inconsistent 
with  his  rights,  or  if  he  omits  to  do  any  act,  when  required  by 


OPP  v.  WARD.  339 

the  surety,  which  his  duty  enjoins  him  to  do,  and  the  omission 
proves  injurious  to  the  surety,  in  all  such  cases  the  latter  will 
be  discharged."  (1  Story's  Eq.  Juris.  §325.)  The  question 
of  the  liability  of  the  defendants  to  the  owner  of  the  judgments, 
after  the  appeal  to  the  Court  of  Appeals,  if  the  sureties  upon 
such  appeal  had  not  been  released,  is  not  necessarily  involved, 
and  is  not  considered.  "We  hold  that,  assuming  such  liability, 
the  discharge  of  the  surety  upon  such  appeal  discharged  the 
defendants  from  liability  upon  the  appeal  to  the  General  Term. 
The  point  was  sufficiently  raised  at  the  trial. 

The  judgment  must  be  reversed,  and  a  new  trial  granted,  costs 
to  abide  the  event. 

All  concur. 

Judgment  reversed. 


OPP  v.  WARD.     1890. 
135  Ind.  241;  24  N.  E.  Eep.  974;  21  Am.  St.  Rep.  220. 

Appeal  from  circuit  court,  Tippecanoe  county,  A.  E.  Paige, 

Judge. 

Suit  by  William  L.  Ward  against  John  Opp  and  Wilson  & 
Hanna,  in  which  he  seeks  to  be  subrogated  to  the  rights  of 
Wilson  &  Hanna  under  an  appeal  boncTexecuted  by  James  H. 
Telford  as  principal  and  John  Opp  as  surety.  Judgment  was 
recovered  by  plaintiff,  which  the  court  limited  in  amount  to 
$760.15.  The  defendant  Opp  appealed,  assigning  as  error  the 
insufficiency  of  the  complaint,  the  incorrectness  of  the  court's 
conclusions  of  law,  and  the  overruling  of  a  motion  for  new  trial ; 
it  being  objected  to  the  complaint  that  it  did  not  appear  that 
plaintiff  had  discharged  the  whole  debt  for  which  the  appeal- 
bond  was  security,  it  not  stating  what  amount  of  costs,  if  any, 
Wilson  &  Hanna  had  received  judgment  for  against  Telford, 
nor  averring  that  the  costs  were  paid. 

MITCHELL,  J.  The  questions  for  decision  arise  upon  the  fol- 
lowing facts :  In  1876,  Wilson  &  Hanna  leased  certain  premises 
in  the  city  of  LaFayette  to  James  H.  Telford,  who  agreed  to 
pay  a  stipulated  sum  as  rent,  and  to  surrender  the  premises  at 
the  end  of  one  year.  Ward  became  bound  as  guarantor  for  the 
faithful  performance  by  the  lessee  of  the  covenants  or  agree- 


340  RIGHTS  OF  SUCCESSIVE  SURETIES. 

•merits  contained  in  the  lease.  Telford  went  into  possession,  but 
refused  to  surrender  at  the  end  of  the  term;  and  the  lessors 
recovered  judgment  against  him  for  possession,  and  for  $164.44 
damages.  Telford  appealed  to  this  court,  Opp  becoming  surety 
on  his  appeal-bond,  by  means  of  which  all  proceedings  to  enforce 
the  judgment  were  suspended,  and  the  lessors  were  thereby  kept 
out  of  possession  from  the  31st  day  of  January,  1878,  the  date 
of  the  judgment,  until  the  20th  day  of  May,  1881 ;  the  judgment 
having  been  affirmed  on  the  15th  day  of  February,  1881,  Telford 
v.  Wilson,  71  Ind.  555.  Thereupon,  Wilson  &  Hanna  brought 
suit,  and  recovered  judgment  against  Ward  on  his  contract  of 
guaranty.  The  amount  recovered  was  $676,  besides  costs;  the 
amount  specified  being  the  rental  value  of  the  leased  premises 
from  the  date  of  the  judgment  appealed  from  to  the  16th  day 
of  July,  1880,  at  which  date  Telford  died,  having  previously 
paid  the  judgment  recovered  against  him  for  damages.  The 
judgment  against  Ward  was  afterwards  affirmed  by  this  court 
on  appeal.  Ward  v.  Wilson,  100  Ind.  52.  Ward  subsequently 
paid  the  judgment  recovered  against  him,  which,  with  accum- 
ulated interest  and  costs,  amounted  when  paid  to  $838.30;  and 
thereupon  he  brought  this  suit  against  Opp  on  the  appeal-bond. 
Wilson  &  Hanna  were  made  parties  defendant  to  answer.  They 
disclaimed  any  interest  in  the  appeal-bond  except  that  they 
claimed  judgment  in  their  favor  for  a  small  amount  of  costs 
which  remained  unpaid  in  their  suit  against  Telford.  The 
finding  of  the  court  was  in  favor  of  the  plaintiff  below. 

If  the  plaintiff  was  entitled  to  recover,  it  was  because,  after 
paying  the  judgment  recovered  by  Wilson  &  Hanna  against  him 
for  the  costs  that  accrued  pending  the  appeal  taken  by  Telford, 
he  became  subrogated  to  their  rights  and  remedies  upon  the 
appeal-bond.  Subrogation  is  an  equitable  device,  and  rests  upon 
the  principles  of  justice  and  equity,  which  it  is  intended  to 
accomplish.  The  doctrine  is  well  established  that  one  who 
occupies  the  attitude  of  a  surety  will  be  subrogated  to  all  the 
rights,  remedies,  and  securities  which  the  creditor  had,  in  case 
the  former  has  been  compelled  to  pay  a  debt  which  in  equity 
and  good  conscience  should  have  been  paid  by  another.  Pay- 
ment by  the  surety  is  equivalent  to  a  purchase  from  the  creditor, 
and  operates  as  an  equitable  assignment  of  the  debt,  and  all  its 
incidents,  to  the  former.  Thomas  v.  Stewart,  117  Ind.  50,  18 
N.  E.  Rep.  505;  Pence  v.  Armstrong,  95  Ind.  191;  Arbogast  v. 


OPP  v.  WARD.  341 

Hays,  98  Ind.  26;  Acer  v.  Hotchkiss,  97  N.  T.  395.  These 
principles  are  familiar,  and  of  frequent  application.  The  ap- 
plication of  the  doctrine  of  subrogation  requires  (1)  that  a 
person  must  have  paid  a  debt  due  to  a  third  person,  for  the 
payment  of  which  another  was  in  equity  primarily  liable;  and 
(2)  that,  in  paying  the  debt,  the  person  paying  acted  under 
the  compulsion  of  saving  himself  from  loss,  and  not  as  a  mere 
volunteer.  Insurance  Co.  v.  Middleport,  124  U.  S.  534,  8  Sup. 
Ct.  Rep.  625;  Hoover  v.  Epler,  52  Pa.  St.  522;  Southall  v. 
Farish,  7  S.  E.  Rep.  534;  Sheld.  Subr.  §240. 

It  is  insisted,  however,  that,  in  the  case  of  successive  sureties, 
who  become  bound  by  separate  obligations  for  the  payment  of 
the  same  debt,  the  equity  of  the  last  surety  is  superior  to  that 
of  the  first,  and  that,  as  the  liability  of  the  plaintiff  below  as 
guarantor  was  prior  in  point  of  time  to  that  of  the  appellant 
as  surety  on  the  appeal-bond,  both  being  bound  for  the  same 
debt,  the  equity  of  the  latter  was  at  least  equal,  if  not  superior, 
to  that  of  the  former.  This  view  is  not  maintainable  in  a  case 
like  the  one  under  consideration.  It  is  quite  true  the  plaintiff 
below  became  liable  as  guarantor  for  the  payment  of  all  rent, 
as  well  as  for  all  damages  growing  out  of  the  unlawful  detention 
of  the  property  by  the  tenant.  But  it  is  also  true  that  his 
liability,  which  theretofore  was  uncertain  and  contingent,  be- 
came certain  and  fixed,  when  the  landlord  recovered  judgment 
for  the  possession  of  the  leased  premises,  and  for  damages  for 
their  unlawful  detention.  The  guarantor  had  the  right  to  pay 
the  amount  of  the  judgment  recovered  against  his  principal, 
and  thus  put  an  end  to  his  liability  at  once.  By  the  voluntary 
intervention  of  the  appellant  in  becoming  surety  on  the  appeal- 
bond,  all  further  proceedings  on  the  judgment  by  which  the 
landlord  was  awarded  the  right  of  immediate  possession  were 
stayed,  and  the  hands  of  the  guarantor  were  effectually  tied 
until  the  appeal  was  disposed  of.  It  is  settled  that  the  sureties 
on  appeal-bond  given  by  a  judgment  defendant  on  appeal  from 
a  judgment  for  the  possession  of  real  estate  are  liable  not  only 
for  the  money  judgment,  but  also  for  the  rental  value  of  the 
real  estate  pending  the  appeal,  to  an  amount  not  exceeding  the 
penalty  of  the  bond.  Opp  v.  Ten  Eyck,  99  Ind.  345;  Hays  v. 
Wilstach,  101  Ind.  100;  Graeter  v.  De  Wolf,  112  Ind.  1,  13  N, 
E.  Rep.  Ill ;  Stults  v.  Zahn,  117  Ind.  297,  20  N.  E.  Rep.  154. 
Upon  the  determination  of  the  appeal  the  landlord  had  his 


342  RIGHTS  OF  SUCCESSIVE  SURETIES. 

election  to  sue  on  the  appeal-bond,  and  recover  the  rental  value 
of  the  premises  unlawfully  detained,  or  to  proceed  against  the 
guarantor  on  the  lease.  He  adopted  the  latter  alternative.  If 
he  had  sued  on  the  appeal-bond,  and  recovered  judgment  against 
the  surety,  it  is  quite  certain  that  the  latter  would  have  had  no 
standing  in  a  court  of  equity  to  recover  from  the  guarantor. 
This  is  so  because  he  occupied  the  position  of  a  volunteer;  and, 
as  is  pertinently  said  in  Acer  v.  Hotchkiss,  supra:  "One  who 
is  only  a  volunteer  can  not  invoke  the  aid  of  subrogation,  for 
such  a  person  can  establish  no  equity."  Gans  v.  Thieme,  93 
N.  Y.  232.  Having  intervened  as  a  volunteer,  and  by  his  inter- 
position stayed  proceedings  on  the  judgment  for  possession  to 
the  prejudice  of  the  guarantor,  whose  liability  had  become  fixed 
and  at  an  end  so  far  as  respects  future  rents,  it  must  be  con- 
sidered in  equity  that  he  did  so  upon  the  condition  that  he 
would  take  the  place  of  the  guarantor  from  that  time  forward. 
Barnes  v.  Mott,  64  N.  Y.  397 ;  Hinckley  v.  Kreitz,  58  N.  Y.  583 ; 
Schnitzel's  Appeal,  49  Pa.  St.  23.  The  interposition  of  the 
second  surety  having  been  the  means  of  involving  the  first  in 
the  liability  which  he  was  ultimately  compelled  to  pay,  the 
equity  of  the  first  is  complete;  and  he  is  entitled,  on  the  princi- 
ples of  subrogation,  to  stand  as  though  the  creditor  had  assigned 
the  appeal  bond  to  him.  Brandenburg  v.  Flynn,  12  B.  Mon. 
397;  Bohannon  v.  Combs,  Id.  563;  Brandt,  Sur.  §227;  Sheld. 
Subr.  §131.  One  who  intervenes  without  the  solicitation  of  a 
surety,  and  by  his  interference  ties  the  hands  of  the  latter  so 
as  to  prolong  or  add  to  his  liability,  and  prevent  the  effectual 
enforcement  of  the  judgment  or  process  against  the  principal, 
as  it  might  have  been  but  for  his  intervention,  cannot  be  heard 
to  say  that  he  occupies  a  position  which  should  commend  him 
to  the  favor  of  a  court  of  equity.  The  conclusion  above  stated 
is  in  no  wise  in  conflict  with  that  reached  in  Kane  v.  State,  78 
Ind.  103.  In  that  case  the  principal  had  given  bond,  with 
sureties,  to  the  state,  conditioned,  among  other  things,  that  he 
would  pay  all  fines  and  costs  which  might  be  assessed  against 
him  for  any  violation  of  the  statute  regulating  the  sale  of  in- 
toxicating liquors.  Fines  were  afterwards  assessed  against  him 
which,  with  costs,  amounted  to  a  considerable  sum.  These  were 
afterwards  paid  by  one  who  became  replevin  bail  for  the  stay 
of  execution,  and  it  was  correctly  held  that  the  bail  became 
subrogated  to  the  rights  of  the  state,  and  entitled  to  maintain. 


OPP  v.  WARD.  343 

a  suit  against  the  surety  on  the  bond.  In  that  case,  however, 
the  liability  of  the  sureties  on  the  bond  was  in  no  way  enlarged 
or  prolonged,  nor  was  the  situation  of  the  sureties  in  any  way 
changed,  by  the  intervention  of  the  replevin  bail.  Possibly,  if 
it  had  been  shown  that  the  principal  had  property  out  of  which 
the  fine  and  costs  could  have  been  made  in  case  execution  had 
issued  when  the  fines  were  assessed,  and  that  he  had  since  dis- 
posed of  the  property  to  the  prejudice  of  the  sureties  on  the 
bond,  a  different  conclusion  might  have  been  reached.  Where 
the  first  surety  suffers  loss,  or  where  his  liability  is  increased 
or  prolonged  so  as  to  render  him  liable  to  suffer  loss  by  the 
intervention  of  the  second,  the  latter  assumes  all  the  risk  arising 
from  his  voluntary  interposition.  In  such  a  case  there  is  no  in- 
justice in  requiring  the  second  surety  to  perform  his  undertaking 
according  to  its  terms,  since  by  his  intervention  he  has  been  the 
means  of  involving  the  first  surety  in  a  liability  which  otherwise 
he  might  have  escaped.  The  conclusion  above  is  not  in  conflict 
with  that  reached  in  Holmes  v.  Day,  108  Mass.  563. 

It  is  undoubtedly  true,  as  the  appellant  contends,  that  a  surety 
will  not  be  subrogated  to  the  equities  or  securities  of  the  creditor 
until  the  claim  of  the  latter  for  the  payment  of  which  he  has 
taken  security  has  been  fully  satisfied.  Vert  v.  Voss,  74  Ind. 
565;  Sheld.  Subr.  §127.  The  reason  is  that  the  law  will  not 
permit  the  right  of  action  to  enforce  the  security  to'  be  divided 
between  the  creditor  and  the  surety,  nor  allow  the  debtor  to 
be  subjected  to  the  inconvenience  of  two  actions  instead  of  one. 
In  the  present  case  the  creditors  were  made  parties  to  the  suit. 
They  disclaimed  any  interest  in  the  bond,  except  as  to  some  costs, 
and  the  finding  of  the  court  fails  to  show  that  they  are  entitled 
to  recover  anything  on  the  bond.  All  those  who  had  any  Interest  \ 
in  the  bond  were  before  the  court,  and  it  was  not  so  material  \ 
whether  they  were  plaintiffs  or  defendants,  so  that  the  judgment 
settled  the  rights  of  all  the  parties  before  the  court.  Morning-  / 
star  v.  Cunningham,  110  Ind.  328,  11  N.  E.  Rep.  593 ;  Insurance 
Co.  v.  Oilman,  112  Ind.  7,  13  N.  E.  Rep.  118. 

Upon  the  facts  as  found  it  appears,  therefore,  that1  the  credi- 
tor's claim  has  been  lawfully  satisfied,  and  the  surety  cannot  be 
again  vexed  by  another  suit  on  the  appeal-bond.  There  was 
no  necessity  that  a  demand  should  have  been  made  before  in- 
stituting the  suit.  It  does  not  appear  that  the  amount  of  the 


344  SUBROGATION  AND  CONTRIBUTION. 

recovery  was  too  large.     There  was  no  error.    The  judgment  is 
affirmed,  with  costs. 


CHAPTER  X. 

SUBROGATION  AND  CONTRIBUTION. 

a.  The  surety  who  is  compelled  to  pay  the  debt  of  the  principal 
is  l>y  law  ipso  facto  surrogated  to  the  rights  of  the  creditor 
and  may  sue  the  principal  debtor. 

BULLARD  v.  BROWN.     1902. 
74  Vt.  120,  52  Ail.  Rep.  422. 

Appeal  in  chancery.  Heard  on  master's  report  and  orator's 
exceptions  thereto,  at  the  June  Term,  1901,  Tyler,  Chancellor, 
presiding.  Exceptions  overruled  and  bill  dismissed.  The 
orator  appealed. 

STAFFORD,  J.  The  defendant,  Chester  Brown,  finding  himself 
at  the  age  of  eighty-one  years,  alone  in  the  world  and  in  need 
of  some  one  to  keep  his  house  and  take  care  of  him,  told  the 
defendant  Betsey,  a  maiden  lady  of  sixty-two  years,  that  if  she 
would  be  his  wife  he  would  give  her  everything  he  had,  includ- 
ing his  home  place  worth  about  $1,200;  that  there  was  a  mort- 
gage on  it  for  $225,  and  that  that  was  all  he  owed.  All  of  which 
was  strictly  true,  except  that  he  owed  the  orator,  a  lawyer,  for 
services  in  a  chancery  suit  then  on  the  docket,  some  $38,  and  that 
the  orator  was  surety  for  costs  in  his  behalf  in  the  same  case. 
So  she  took  him  at  his  word,  and  they  were  married.  Some 
months  later  the  orator  sent  him  his  bill;  and  in  a  few  days 
Chester  deeded  the  place  to  Betsey,  and  turned  over  to  her  every 
dollar  of  his  personal  property,  just  as  he  had  promised.  Then 
when  the  orator,  meeting  him,  asked  him  for  his  pay,  he  told 
him  he  didn't  know  as  he  owed  him  anything;  that  he  had 
got  his  property  in  such  shape  that  nothing  could  be  collected 
of  him,  and  he  shouldn't  pay.  So  the  orator  sued  him  before 
a  justice  of  the  peace,  demanding  fifty  dollars.  When  the  suit 
was  begun  the  case  in  chancery  was  still  pending,  but  when  the 
trial  day  came  that  case  had  been  disposed  of,  and  the  orator 
had  found  himself  liable  to  pay  costs  for  his  client  of  the  amount 
of  $20.20.  Chester  defaulted  at  the  justice  hearing,  through 


BULLARD  v.  BROWN.  345 

failing  to  find  the  right  door  in  the  hall-way,  and  the  orator  got 
leave  to  raise  the  ad  damnum  to  $65,  and  then  took  judgment 
for  his  bill  for  services,  with  interest,  and  for  the  $20.20  which 
he  was  liable  to  pay  as  costs,  but  which  he  had  not  paid,  and  has 
not  yet,  although  he  has  always  stood  ready  to  do  so  when  re- 
quired, making  his  judgment  in  all  $60.01,  besides  costs.  When 
he  brought  suit  he  had  the  place  in  question  attached  as  Chester 's 
property.  He  has  now  taken  out  execution  and  levied  upon  it, 
and  brings  this  bill,  under  V.  S.  1848,  to  have  the  conveyance 
to  Betsey  declared  void  and  the  property  held  to  satisfy  his 
claim,  on  the  ground  that  that  conveyance  was  in  fraud  of  his 
rights. 

The  orator  objected  to  all  parol  testimony  tending  to  show 
an  ante-nuptial  agreement  as  ruled  out  by  the  statute  of  frauds, 
and  the  facts  were  found  solely  upon  such  oral  testimony.  His 
position  here  is  that,  the  promise  Chester  made  to  Betsey  before 
marriage  being  one  that  she  could  not  have  enforced  by  reason 
of  the  statute,  his  conveyance  to  her  after  marriage,  made  in 
pursuance  of  that  promise,  was  a  purely  voluntary  conveyance 
(Lloyd  v.  Fulton,  1  Otto  479,  23  L.  Ed.  363;  Chancellor  Kent's 
opinion  in  Reade  v.  Livingston,  3  Johns.  Ch.  481,  8  Am.  Dec. 
520;  Carter  v.  Smith,  82  Ala.  334,  60  Am.  R.  738,  740;  Deihon 
v.  Wood,  148  Mass.  132,  1  L.  R.  A.  158,  and  note ;  and  numerous 
cases  stated  in  Am.  Digest,  Century  Ed.  Vol.  23,  columns  1839- 
1845),  and  being  a  voluntary  conveyance,  was  not  good  as 
against  the  orator,  no  property  being  left  and  no  provision  made 
to  pay  him  (Corey  v.  Morrill,  71  Vt.  51,  42  Atl.  976),  although 
if  the  conveyance  had  been  made  to  her  before  marriage  it  might 
have  stood,  inasmuch  as  she  acted  in  good  faith.  Pierce  v. 
Harrington,  58  Vt.  649,  7  Atl.  462.  But  we  will  not  decide  this 
point,  for  if  we  should  go  with  the  orator  as  far  as  he  asks 
upon  that  line,  we  should  not  be  at  the  end  of  the  case.  We 
must  still  meet  the  question,  whether  the  orator  is  entitled  to 
enforce  his  judgment  as  it  is  made  up. 

He  objected  to  all  evidence  tending  to  impeach  his  judgment, 
and  filed  exceptions  to  the  report  on  the  ground  of  such  admis- 
sion; but  in  this  court  he  has  made  no  objection  of  that  sort, 
and  we  treat  the  case,  as  he  has  in  his  brief,  upon  the  facts  found 
by  the  master.  It  comes  to  this:  that,  even  if  he  had  a  right 
to  raise  his  ad  damnum  in  the  circumstances,  he  had  no  right 
to  take  judgment  for  the  costs  in  the  chancery  suit,  which  he 


346  SUBROGATION  AND  CONTRIBUTION. 

had  never  paid;  and  a  court  of  equity  will  not  aid  him  in  en- 
forcing such  a  judgment. 

/  'Neither  can  this  court  correct  that  judgment  at  his  request 
in  this  proceeding.  If  that  could  be  done  at  all,  this  bill  is  not 
brought  for  such  a  purpose,  but  to  perfect  a  lien  under  the 
easting  judgment,  and  it  is  too  late  for  him  thus  to  retrace  his 
steps. 

Decree  affirmed  and  cause  remanded. 


BEENTAL  v.  HELMS.     1791. 
1  Root  (Conn.)  291;  1  Am.  Dec.  44. 

Action  on  the  case,  declaring:  That  the  plaintiff,  at  the 
special  instance  and  request  of  the  defendants,  and  for  their 
proper  debt  and  duty,  on  the  fifteenth  of  April,  17 — ,  became 
bound  with  them  to  the  treasurer  of  the  state  in  the  present  sum 
of  one  hundred  and  one  pounds,  five  shillings,  conditioned  to 
pay  fifty  pounds,  ten  shillings  and  six  pence,  by — day  of — , 
being  the  duties  of  forty-five  hogsheads  of  rum;  that  the  de- 
fendants, in  consideration  thereof,  assumed  and  promised  to 
indemnify  and  save  harmless  the  plaintiff  from  all  damages  and 
cost  he  should  suffer  and  pay  on  that  account;  that  the  plaintiff 
has  been  compelled  to  pay  said  debt,  and  been  put  to  much  cost, 
to  his  damage  of  eighty  pounds. 

Plea  in  bar :  That  the  plaintiff  hath  never  paid  one  farthing 
of  said  debt,  nor  been  put  to  any  cost  on  that  account ;  nor  hath 
he  been  sued  until  the  day  of  the  date  of  the  plaintiff's  writ, 
when  a  summons  was  served  upon  him.  The  plaintiff  demurred 
to  the  defendant's  plea. 

The  question  was:  Whether  the  plaintiff,  being  liable  to  be 
sued,  and  to  be  compelled  to  pay  the  debt,  is  a  good  cause  of 
action  upon  this  promise  of  indemnity;  by  the  plaintiff  it  was 
contended  that  it  was.  By  the  defendant  it  was  contended  that 
neither  a  liability  to  be  sued,  nor  being  actually  sued,  is  a  good 
cause  of  action,  upon  a  promise  generally  to  save  harmless  and 
indemnify. 

By  COURT.  That  the  defendant's  plea  is  sufficient.  Where  a 
man  is  bound  for  the  debt  of  another,  at  his  special  instance  and 


BRENTAL  v.  HELMS.  347 

request,  the  law  implies  an  obligation  or  promise  to  indemnify 
him.  3  Wilson  262.  But  is  it  to  indemnify  him  against  a  mere 
liability  to  suffer  damage,  or  to  indemnify  him  against  the  dam- 
age which  he  shall  actually  suffer?  It  is  undoubtedly  the  latter. 
One  would  suppose  that  any  doubt  or  difficulty  which  has 
existed  in  resolving  this  question  would  be  obviated  by  ascertain- 
ing, with  precision,  the  facts  in  the  cases,  which  are  as  follows, 
viz. :  The  plaintiff  becomes  bound  with  the  defendants  for  their 
debt,  and  at  their  request ;  the  defendants,  in  consideration  there- 
of, promise  to  indemnify  and  save  him  harmless,  on  account  of 
his  thus  becoming  bound. 

Now,  what  is  meant  by  indemnifying  and  saving  harmless? 
The  terms  are  synonymous,  and  mean  the  same  thing;  they 
certainly  mean  that  the  defendants  will  indemnify  and  save  the 
plaintiff  from  any  and  every  loss  and  damage  he  may  eventually 
suffer  by  reason  of  his  becoming  bound  for  them.  This  is  done 
either  by  paying  the  debt,  and  thereby  discharging  the  surety, 
or  in  case  that  is  omitted,  and  the  surety  is  obliged  to  pay  the 
debt,  by  refunding  to  him  the  money  and  interest,  and  the  ex- 
pense and  just  damages  for  his  risk  and  trouble;  in  either  of 
these  ways  the  surety  is  indemnified  and  the  defendant's  promise 
performed. 

Two  things  are  necessary  to  be  united  in  order  to  furnish  a 
good  cause  of  action  in  any  case,  viz.:  A  violation  of  a  right, 
which,  in  law  language,  is  an  injury,  and  a  damage.  Injury 
without  damage,  and  damage  without  injury,  are  neither  of 
them  alone  a  ground  of  action;  and  it  very  often  happens  in 
society  that  men  are  exposed  to  suffer  loss  and  damage,  yet  no 
action  can  be  maintained  until  a  damage  is  actually  sustained. 
A  man  sells  a  piece  of  land,  and  covenants  to  warrant  and  defend 
it  against  all  claims  and  demands  whatever ;  suits  may  be  brought 
against  his  grantee  for  the  land,  yet  the  warrantor  is  not  liable 
on  his  covenant  unless  his  grantee  is  evicted;  and  in  that  case, 
the  covenant  extends  only  to  defend  the  title  against  an  eviction, 
or  to  render  damages  to  his  grantee  for  the  loss  of  the  land, 
his  expense,  and  trouble  in  defending  it.  The  latter  is  equally  a 
performing  of  his  covenant  as  the  former;  for  the  covenant  is, 
that  the  grantee  shall  hold  the  land,  but,  if  he  cannot,  that  the 
grantor  shall  make  it  good  to  him — that  is,  will  pay  him  all  his 
just  damages  and  costs. 

If  an  action  will  lie  in  favor  of  a  surety  against  his  principal 


348  SUBROGATION  AND  CONTRIBUTION. 

because  lie  is  exposed  to  pay  the  debt  of  his  principal,  it  must 
be  either  to  recover  the  sum  he  is  liable  for,  or  to  compensate 
him  for  the  liability;  if  for  the  former,  he  then  will  recover  a 
sum  of  money  from  the  principal,  that  he  has  never  paid,  and 
only,  as  the  case  may  be,  for  the  principal  to  recover  it  back 
again,  for  the  creditor  may  never  call  upon  the  surety  for  it. 
If  it  be  the  latter,  viz.,  for  his  liability  only,  and  not  for  the 
debt,  it  will  be  difficult  to  find  a  rule  of  damages.  Besides,  if 
an  action  is  maintainable  on  this  ground,  the  surety  may  repeat 
his  actions  for  this,  from  day  to  day,  so  long  as  he  continues 
liable,  as  in  case  of  a  nuisance ;  and  even  after  the  principal  has 
paid  and  discharged  the  debt,  if  the  surety  had  at  any  time 
been  liable,  an  action  would  be  maintainable.  The  cases  cited 
from  the  books,  respecting  sheriffs,  and  respecting  bankrupts, 
were  they  to  be  considered  as  authorities  here,  prove  nothing 
for  the  plaintiff;  for  the  escape  of  a  prisoner  in  jail,  on  an 
execution,  is  a  tort,  committed  upon  the  jailer,  and  he  thereby 
becomes  debtor  to  the  creditor ;  he  may  immediately  pursue  and 
retake  the  body,  or  have  an  action  for  the  money. 

In  the  case  of  bankruptcy,  if  a  surety  might  have  an  action 
on  the  ground  of  his  being  liable  only,  it  would  be  for  damages 
only,  which  is  not  provable  under  the  commission.  But  Lord 
Mansfield,  in  the  case  of  Taylor  V.  Mills  and  Magnall,  Cowper 
525,  where  the  plaintiff  has  become  liable  before  the  bankruptcy, 
lays  it  down  as  a  settled  principle  that  the  plaintiff,  till  damni- 
fied, which  he  could  not  be  until  he  had  been  called  upon  and 
had  paid,  could  not  bring  an  action;  he  did  not  pay  the  debt 
till  after  the  commission  issued,  consequently  his  whole  damage 
and  cause  of  action  arose  after  the  bankruptcy.  Where  the  en- 
gagement to  indemnify  is  special,  to  pay  the  debt  when  it  be- 
comes due,  and  to  indemnify,  etc.,  the  case  would  be  otherwise. 


YAIL  v.  FOSTER  ET  AL.  349 

&.  All  securities  given  by  the  principal  to  the  surety  to  in~ 
demnify  the  latter  inure  to  the  benefit  of  the  creditor  by  sub' 
rogation. 

VAIL  v.  FOSTER  ET  AL.     1850. 
4  N.  Y.  312. 

BRONSON,  Ch.  J.  The  case  is  shortly  this.  The  plaintiffs 
sold  land  to  Morgan,  who,  instead  of  giving  his  bond  and  mort- 
gage to  the  plaintiffs  to  secure  the  purchase  money,  got  Flagler 
to  give  his  note  to  the  plaintiffs  for  the  amount,  payable  in  one 
year ;  and  Morgan  gave  a  bond  and  mortgage  to  Flagler  for  his 
indemnity,  for  the  same  amount,  and  payable  at  the  same  time 
with  the  note.  Before  the  credit  expired  Flagler  became  in- 
solvent and  the  plaintiffs  seek  relief,  either  on  the  ground  of 
an  equitable  lien  on  the  land  for  the  purchase  money,  or  by 
reaching  the  mortgage  to  Flagler,  and  having  it  foreclosed  for 
the  payment  of  the  debt. 

By  taking  the  security  of  a  third  person  for  the  purchase 
money  the  plaintiffs  have  lost  their  equitable  lien  on  the  land, 
and  can  not  have  relief  in  that  form,  as  has  been  very  clearly 
shown  by  the  vice-chancellor  in  his  opinion.  And  I  agree  in 
most  that  he  has  said  upon  the  whole  case.  But  there  is  one 
point  on  which  I  think  the  supreme  court  was  right  in  reversing 
the  vice-chancellor's  decree,  and  directing  a  foreclosure  of  the 
mortgage  for  the  benefit  of  the  plaintiffs. 

It  is  a  settled  rule  in  equity,  that  the  creditor  shall  have  the  // 
benefit  of  any  counter  bonds  or  collateral  securities  which  tho 
principal  debtor  has  given  to  the  surety^  or  person  standing  in 
the  situation  of  a  surety,  for  his  indemnity.  Such  securities  are 
regarded  as  trusts  for  the  better  security  of  the  debt,  and 
chancery  will  compel  the  execution  of  the  trusts  for  the  benefit 
of  the  creditor.  Maure  v.  Harrison,  1  Eq.  Gas.  Ab.  93,  K.  5; 
Curtis  v.  Tyler,  9  Paige  432;  Wright  v.  Morley,  11  Ves.  22; 
Bank  of  Auburn  v.  Throop,  18  Johns.  505 ;  4  Kent  307,  6th  ed. ; 
1  Story 's  Eq.  §§  502,  638.  This  principle  covers  the  case,  and 
the  plaintiffs  are  entitled  to  the  mortgage  which  Morgan,  the 
principal  debtor,  gave  to  Flagler,  the  surety,  for  his  indemnity. 

But  it  is  said  that  Morgan  is  not  a  debtor  to  the  plaintiffs, 
and  consequently  that  the  relation  of  principal  and  surety  does 
not  exist  between  him  and  Flagler.  It  is  true  that  Morgan  did 


350  SUBROGATION  AND  CONTRIBUTION. 

not  unite  with  Flagler  in  making  the  note,  nor  did  he  come 
under  any  other  express,  obligation  to  the  plaintiffs.  But  he 
was  originally  a  debtor  to  the  plaintiffs  for  the  price  of  the  land ; 
and  although  the  plaintiffs  afterwards  took  the  note  of  Flagler 
.in  lieu  of  the  bond  and  mortgage  of  Morgan,  they  took  it  as  a 
security  only  for  the  purchase  money,  without  agreeing  to  re- 
ceive it  in  satisfaction  of  the  debt.  Taking  the  note  of  a  third 
person  for  an  existing  debt  is  not  payment,  unless  the  creditor 
agrees  to  receive  it  in  payment ;  and  I  find  no  such  agreement  in 
this  case.  Morgan  is  still  liable  to  the  plaintiffs  for  the  purchase 
money,  and  must  of  course  by  regarded,  as  the  principal  debtor ; 
for  it  is  entirely  clear,  upon  the  pleadings  and  proofs,  that 
Flagler  gave  the  note  at  the  request,  and  as  the  surety  of  Morgan, 
without  having  any  personal  interest  in  the  matter.  We  have 
then  the  ordinary  case  of  creditor,  principal  and  surety,  to  which 
the  rule  in  question  has  been  applied;  and  the  mortgage  which 
the  principal  debtor  has  given  to  the  surety  must  be  considered 
as  a  trust  for  the  better  security  of  the  debt,  which  a  court  of 
equity  will  enforce  for  the  benefit  of  the  creditor. 

Foster  &  Co.,  under  their  creditor's  bill,  took  the  effects  of 
Flagler  subject  to  this  equity ;  and  there  is  no  bona  fide  purchaser 
in  the  case. 

I  am  of  the  opinion  that  the  decree  of  the  supreme  court  is 
right,  and  should  be  affirmed. 

Decree  affirmed. 


FARMERS'  &  TRADERS'  NAT.  BANK  v.  SNODGRASS.  1896. 
29  Oregon  395;  45  Pac.  Rep.  758. 

Appeal  from  circuit  court,  Union  county;  Morton  D.  Clifford, 
Judge. 

Action  by  the  Farmers'  &  Traders'  National  Bank  of  La 
Grande  and  others  against  William  J.  Snodgrass  and  others. 
Judgment  for  defendants,  and  plaintiffs  appeal.  Modified. 

BEAN,  C.  J.  The  material  facts  in  this  case  may  be  thus  sum- 
marized. On  July  6,  1891,  W.  J.  Snodgrass  executed  to  William 
and  Fred  Proebstel  a  mortgage  upon  certain  real  estate,  to  in- 
demnify them  against  liability  on  certain  of  his  then  outstand- 
ing notes,  upon  which  they  were  sureties,  and  also  as  an  in- 


BANK  v.  SNODGRASS.  351 

demnity  against  liability  on  such  notes  as  they  might  thereafter 
execute  as  his  sureties.  Among  the  notes  outstanding  at  the 
time  the  mortgage  was  given  was  one  for  $5,000,  to  the  First 
National  Bank  of  Portland,  on  which  the  appellant  Palmer  was 
a  surety  jointly  with  the  Proebstels,  and  which  he  was  compelled 
to  and  did  pay  on  February  12,  1894.  On  January  3,  1893,  and 
while  the  mortgage  was  still  in  force,  the  Proebstels  and  the  re- 
spondent John  Predmore  executed,  as  sureties  for  Snodgrass,  a 
note  to  the  Security  &  Trust  Company  of  Portland  for  $7,300, 
of  which  Predmore  was  compelled  to  and  did  pay  the  sum  of 
$3,250  on  April  12,  1894,  the  remainder  of  the  notes  being  paid 
by  the  other  parties.  The  mortgagees  subsequently  assigned  the 
mortgage  to  the  payees  of  the  remaining  notes  on  which  they 
were  sureties,  who  brought  this  suit  to  foreclose  the  same,  making 
Palmer  and  Predmore  parties  thereto.  A  decree  was  entered 
foreclosing  the  mortgage,  and  directing  that  the  proceeds  of  the 
sale  of  the  mortgaged  property  be  applied — First,  to  the  payment 
of  the  costs  and  expenses  of  the  suit;  second,  to  the  payment  of 
the  amount  found  due  the  plaintiffs;  and,  third,  to  the  amount 
found  due  Palmer  and  Predmore,  pro  rata.  From  this  decree, 
Palmer  appeals,  claiming  that  he. is  entitled  to  priority  over 
Predmore,  and  in  this  contention  we  think  he  is  right.  The  rule 
seems  well  settled  that  where  one  of  several  sureties  after  all  had 
signed,  and  before  the  debt  has  been  paid,  obtains  from  the 
principal  a  mortgage  or  other  security  for  his  indemnity,  it  will 
inure  to  the  benefit  of  his  co-surety.  Brandt,  Sur.  §  268 ;  Sheld. 
Subr.  §143;  Steele  v.  Mealing,  24  Ala.  285;  Brown  v.  Ray,  18 
N.  H.  102.  Under  this  rule,  the  Proebstel  mortgage  inured  to 
the  benefit  of  Palmer;  and,  this  being  so,  it  necessarily  follows 
that  his  equities  are  prior  in  time  and  superior  in  right  to  those 
of  Predmore,  who  became  a  co-surety  of  the  Proebstels,  for 
Snodgrass,  long  after  the  mortgage  was  executed.  As  to  Palmer, 
the  mortgage  took  effect  from  its  execution  and  delivery,  but 
not  as  to  Predmore  until  the  note  upon  which  he  was  a  co-surety 
was  made, — some  18  months  thereafter.  Van  "Winkle  v.  John- 
son, 11  Or.  469,  5  Pac.  922.  And  hence  the  latter 's  rights 
thereunder  are  subject  to  those  of  Palmer.  The  decree  will 
therefore  be  modified  accordingly. 


352  SUBROGATION  AND  CONTRIBUTION. 


c.    Equity   will  apportion'  the   burden  of  suretyship   equally 
among  the  solvent  co-sureties. 

LANSDALE  v.  COX.     1828. 
7  T.  B.  Hon.  (Ky.)  401. 

Opinion  of  the  court  by  Chief  Justice  BIBB. 

Richard  Lansdale  and  James  Cox  were  the  sureties  of  Shanks, 
in  an  injunction  bond  to  Summers,  who  sued  Cox,  the  surviving 
obligor,  and  had  judgment  for  $730.24,  besides  costs,  which 
was  paid  by  Cox's  surety  in  a  replevin  bond,  and  afterward  paid 
by  Cox  to  his  surety.  These  proceedings  were  in  the  Nelson 
circuit  court. 

Cox  thereafter,  upon  motion  against  the  heirs  of  Shanks  (402) 
the  principal,  (stating  that  there  was  no  executor  or  adminis- 
trator of  Shanks,)  had  judgment,  and  execution,  upon  which 
the  sheriff  made  a  small  part  of  the  judgment,  (about  $35.19,) 
and  returned  that  he  could  find  no  estate  whereof  to  satisfy 
the  residue. 

Cox  then  sued  his  motion  against  the  heirs  and  administra- 
tors, jointly,  of  his  co-security,  Lansdale,  for  contribution,  and 
recovered  judgment;  to  which  the  defendants  prosecute  this 
writ  of  error. 

The  whole  doctrine  of  contribution  between  securities  orig- 
inated with  courts  of  equity.  There  is  no  express  contract  for 
contribution;  the  bonds,  obligations,  bills,  or  notes,  created  lia- 
bilities from  the  obligors  to  the  obligees.  The  contribution  be- 
tween co-sureties  results  from  the  maxim,  that  equality  is  equity. 
Proceeding  on  this,  a  surety  is  entitled  to  every  remedy  which 
the  creditor  has  against  the  principal  debtor;  to  stand  in  the 
place  of  the  creditor;  to  enforce  every  security,  and  all  means 
of  payment ;  to  have  those  securities  transferred  to  him,  though 
there  was  no  stipulation  for  that.  This  right  of  a  surety  stands 
upon  a  principle  of  natural  justice.  The  creditor  may  resort 
to  principal,  to  either  of  the  securities,  for  the  whole,  or  to  each 
for  his  proportion,  and  he  has  that  right,  if  he,  from  partiality 
to  one  surety,  or  for  other  cause,  will  not  enforce  it,  the  court 
of  equity  gives  the  same  right  to  the  other  surety,  and  enables 
him  to  enforce  it.  Natural  justice  says  that  one  surety  having 
become  so  with  other  sureties,  shall  not  have  the  whole  debt 


LANSDALE  v.  COX.  353 

thrown  upon  him  by  the  choice  of  the  creditor,  in  not  resorting 
to  remedies  in  his  power,  without  having  contribution  from  those 
who  entered  into  the  obligation  equally  with  him.  The  obliga- 
tion of  co-sureties,  to  contribute  to  each  other,  is  not  founded 
in  contract  between  them,  but  stood  upon  a  principle  of  equity, 
until  that  principle  of  equity  had  been  so  universally  acknowl- 
edged, that  courts  of  law,  in  modern  times,  have  assumed  juris- 
diction. This  jurisdiction  of  the  courts  of  common  law  is  based 
upon  the  idea,  that  the  equitable  principle  had  been  so  long 
and  so  generally  acknowledged,  and  enforced,  that  persons,  in 
placing  themselves  under  circumstances  to  which  it  applies,  may 
be  supposed  to  act  under  the  dominion  of  contract,  implied  from 
the  universality  of  that  principle.  For  a  great  length  of  time, 
equity  exercised  its  jurisdiction  exclusively  and  undividedly; 
the  jurisdiction  assumed  by  the  courts  of  law  is,  comparatively 
of  very  modern  date;  and  is  attended  with  great  difficulty 
where  there  are  many  sureties;  though  simple  and  easy  enough 
where  there  are  but  two  sureties,  one  of  whom  brings  him  action 
against  the  other  upon  the  implied  assumpsit  for  a  moiety. 

The  action  at  law,  then,  by  one  surety  against  his  co-surety, 
arises  out  of  an  implied  undertaking,  not  by  force  of  express 
contract,  and  consequently  the  heirs  can  not  have  been  ex- 
pressly bound  by  the  ancestor.  So  that  the  action  at  law,  by 
one  surety  against  the  representatives  of  a  deceased  co-surety, 
must,  by  the  principles  of  the  common  law,  be  against  the 
executor  or  administrator.  To  reach  the  heirs  in  a  suit  at  law, 
the  remedy  given  by  our  statute  in  such  cases,  must  be  jointly 
against  the  executors  or  administrators  and  heirs,  not  against 
the  heirs  alone.  The  remedy  in  equity  by  substitution  of  the 
co-surety  in  place  of  the  creditor,  and  so  allowing  the  one  surety 
his  redress  against  his  co-surety  or  co-sureties  for  contribution, 
still  remains;  the  remedy  at  law,  by  a  regular  action  jointly 
against  the  heirs  and  executors  or  administrators,  by  force  and 
operation  of  the  statute  of  1792,  may  be  pursued. 

Reversed,  with  directions  to  lower  court  to  dismiss  motion- 


23 


354  SUBROGATION  AND  CONTRIBUTION. 

GROSS  v.  DAVIS.    1889. 
87  Tenn.  226;  11  8.  W.  Rep.  92;  10  Am.  St.  Rep.  635;  &  L.  " 


Appeal  from  chancery  court,  Franklin  county;  E.  D.  Han- 
cock, Chancellor. 

CALDWELL,  J.  This  is  a  bill  for  contribution  among  sureties. 
In  April,  1860,  John  G.  Enochs  was  qualified  as  clerk  of  the 
county  court  of  Franklin  county,  with  Gross,  Henderson,  Col- 
yar,  Slatter,  and  others  as  sureties  on  his  official  bond.  After 
the  close  of  the  war,  several  suits  were  instituted  against  him 
and  his  sureties.  One  of  those  suits  finally  resulted  in  a  decree 
in  this  court  against  the  defendants  for  about  $800,  besides 
costs.  The  others  were  successfully  defended.  Gross  paid  the 
greater  part  of  the  decree  mentioned,  including  $130  court  costs. 
The  other  part  of  that  decree  was  paid  by  Davis,  as  personal 
representative  of  Slatter,  who  had  died.  Enochs,  the  principal, 
and  all  the  sureties,  except  those  above  named,  were  insolvent 
when  the  present  proceedings  were  commenced,  and  for  that 
reason  were  not  made  parties.  In  his  answer  Davis  set  up  the 
fact  of  the  payment  made  by  him  on  the  decree,  and  insisted 
that  the  estate  of  his  intestate  was  thereby  discharged  from 
further  liability.  Henderson  claimed,  in  his  answer,  that  he 
had  paid  for  himself  and  co-sureties  more  than  $1,000  in  fees 
to  lawyers,  for  defending  the  several  suits  brought  against  them 
.and  Enochs.  Colyar  made  no  defense,  and  decree  pro  confesso 
was  taken  against  him.  The  chancellor  adjudged  that  Gross 
was  entitled  to  recover  from  Davis,  Henderson,  and  Colyar  each 
one-fourth  of  the  sum  he  had  paid,  with  interest;  making  the 
recovery  against  each  of  the  three  $210.06.  He  then  adjudged 
that  Davis  was  entitled  to  a  credit  on  the  recovery  against  him 
by  the  amount  of  one-fourth  of  the  sum  which  Davis  had  paid, 
with  interest.  That  credit  being  $48.04,  the  net  balance  of  the 
recovery  against  Davis  was  $162.02.  Nothing  was  allowed  Hen- 
derson on  account  of  attorney's  fees  claimed  to  have  been  paid 
by  him.  Both  Davis  and  Henderson  have  appealed. 

The  decree  is  erroneous.  It  proceeds  upon  the  idea  that  every 
surety  who  has  paid  a  part  of  the  joint  liability  may  recover 
from  each  of  his  co-sureties  his  proportional  part  of  the  sum 
so  paid.  .As  applied  to  a  case  where  the  whole  liability  has  been 


GROSS  v.  DAVIS.  355 

discharged  by  one  of  several  sureties,  the  rule  adopted  by  the 
chancellor  is  correct;  but  it  is  not  applicable  when  more  than 
one  of  the  sureties  have  made  payments  on  the  joint  indebted- 
ness. In  the  latter  case,  all  payments  must  be  added  together, 
and  the  aggregate  divided  equally  among  the  sureties.  To  il- 
lustrate :  If  the  $840.24  paid  by  Gross  had  discharged  the  whole 
liability,  and  none  of  the  other  sureties  had  paid  anything,  he 
would  be  entitled  to  a  decree  against  each  of  the  other  three 
solvent  sureties  for  one-fourth  of  that  amount,  namely,  $210.08. 
But  as  the  chancellor  adjudged  that  Gross  paid  $840.24,  and 
Davis  $192.16,  and  that  the  other  sureties  had  paid  nothing, 
he  should,  in  that  case,  have  added  those  two  sums  together, 
and  divided  the  aggregate  of  $1,032.40  into  four  equal  parts, 
of  $258.10  each,  and  allowed  contribution  accordingly.  The  de- 
cree thus  indicated,  upon  the  data  used  by  the  chancellor,  would 
have  given  Davis  credit  for  the  full  amount  paid  by  him,  and 
settled  the  equities  of  all  the  sureties,  instead  of  allowing  him 
credit  for  only  $48.04,  and  leaving  him  with  a  claim  for  the 
same  amount  against  both  Henderson  and  Colyar,  as  does  the 
decree  actually  rendered.  It  is  well  settled  that  one  surety  may 
have  contribution  from  his  co-sureties  only  when,  and  to  the 
extent  that,  he  may  have  paid  more  than  his  ratable  proportion 
of  their  joint  liability.  Brandt  Sur.  §  251.  The  very  founda- 
tion of  the  doctrine  is  the  fact  that  one  has  paid  more  and 
another  less  than  his  share.  Hence  Davis  could  not  maintain 
a  suit  for  contribution  at  all,  under  the  facts  of  this  case.  He 
could  not  recover  from  Henderson  and  Colyar  the  one-fourth  of 
the  amount  he  has  paid,  yet  the  decree  leaves  him  with  his  claim 
therefor  against  each  of  them. 

The  decree  of  the  chancellor  is  erroneous,  not  only  in  the 
result  reached  upon  the  assumption  that  only  Gross  and  Davis 
had  made  payments  on  the  joint  liabilities,  but  it  is  also  er- 
roneous in  that  assumption  itself;  for  it  is  distinctly  proven 
that  Henderson  paid  $1,087.60,  for  which  all  the  sureties  were 
legally  bound  to  contribute.  This  sum  includes  principal  and 
interest  up  to  the  time  he  gave  his  deposition,  which,  though 
in  fact  a  little  earlier,  we  treat  as  of  the  date  of  the  decree 
below.  This  particular  date  for  the  addition  of  interest  is 
adopted  for  convenience,  because  the  sums  already  stated,  as 
having  been  paid  by  Gross  and  Davis,  respectively,  include  in- 
terest up  to  the  same  date.  Then  we  find  the  facts  to  be  that 


356  SUBROGATION  AND  CONTRIBUTION. 

Gross  paid  $840.24,  Davis  $192.16,  and  Henderson  $1,087.60; 
making  a  total  of  $2,120,-  one-fourth  of  which  is  $530.  The 
$530  represent  the  share  of  each  of  the  four  solvent  sureties. 
This  being  a  suit  in  equity,  the  rate  of  contribution  is  deter- 
mined according  to  the  number  of  sureties  on  the  bond,  as  in 
an  action  at  law.  Kiley  v.  Rhea,  5  Lea  116.  Brandt  Sur.  §  252. 
In  chancery,  the  insolvent  principal  and  insolvent  sureties  are 
not  even  necessary  parties.  Id.  §  256.  Henderson  has  paid  more 
than  his  share,  hence  no  recovery  can  be  had  against  him,  and, 
notwithstanding  his  excessive  payment,  he  can  have  no  recovery 
in  his  favor,  in  this  proceeding,  for  the  excess,  because  he  set 
up  his  payment  as  a  matter  of  defense  only,  and  did  not  seek 
any  affirmative  relief  against  any  one.  Gross,  however,  having 
filed  his  bill  for  that  purpose,  is  entitled  to  contribution  from 
Davis,  v,rho  has  paid  less  than  his  share,  and  'from  Colyar,  who 
has  paid  nothing.  The  amount  paid  by  Gross  in  excess  of  his 
share  is  $310.24.  That,  with  interest  from  date  of  decree  below, 
he  is  entitled  to  recover  from  Davis  and  Colyar,  one-half  from 
each.  We  say  one-half  from  each,  because  the  bill  treats  these 
two  defendants  as  equally  liable  to  the  complainant,  and  seeks 
the  same  decree  against  each  of  them.  Such  expression  in 
pleading,  on  the  part  of  the  complainant,  will  be  regarded,  when 
there  is  no  contravening  equity.  The  fact  that  Davis  has  al- 
ready paid  something,  and  that  Colyar  has  paid  nothing,  affords 
no  reason  why  Gross  should  not  have  an  equal  recovery  against 
each  of  them,  for  one-half  the  excess  paid  by  Gross  and  the  full 
sum  paid  by  Davis  together  do  not  aggregate  as  much  as  $530, 
the  share  of  one  surety  in  the  whole  liability  discharged. 

It  has  been  argued  in  behalf  of  Gross  that  the  doctrine  of 
contribution  does  not  extend  to  attorney's  fees,  and  for  that 
reason  the  payment  of  $1,087.60  by  Henderson  was  properly 
disregarded  by  the  chancellor.  In  this  view  we  cannot  concur. 
Suits  were  commenced  against  Enochs  and  his  sureties.  The 
services  of  counsel  were  needed  by  the  sureties,  who  made  a 
common  defense.  Counsel  were  employed  in  the  name  of  all  the 
sureties,  and  rendered  services  for  their  mutual  benefit.  Gross 
knew  this.  He  accepted  the  services,  took  an  interest  in  the 
progress  of  the  litigation,  and  distinctly  agreed  with  his  co- 
sureties, from  time  to  time,  that  he  would  pay  his  share  of  the 
fees.  These  were  the  fees  paid  by  Henderson.  The  employment 
of  counsel  was  not  only  prudent,  but  it  was  necessary,  and 


HOOVER  v.  MOWRER.  357 

probably  resulted  in  saving  the  sureties  large  sums  of  money. 
A  surety  who  pays  fees  under  such  circumstances  is  entitled  to 
contribution,  the  same  as  another  surety  who  pays  a  judgment 
or  decree  recovered  against  them.  By  the  authorities  it  is  suf- 
ficient that  the  fees  were  incurred  in  making  a  prudent  defense. 
Fletcher  v.  Jackson,  23  Vt.  581 ;  Brandt  Sur.  §  247 ;  4  Amer. 
&  Eng.  Ency.  of  Law  3,  note  1.  As  against  Gross,  it  is  in- 
sisted that  the  chancellor  erred  in  allowing  him  contribution  for 
the  $130  of  court  costs  which  he  paid.  The  decree  in  this  re- 
spect was  right.  It  has  been  well  said,  by  the  supreme  court 
of  Maine:  "The  costs  cannot  be  distinguished  from  the  debt. 
Every  equitable  principle  which  entitles  the  plaintiff  to  con- 
tribution for  the  one  applies  equally  to  the  other."  Davis  v. 
Emerson,  17  Me.  64 ;  Brandt  Sur.  §  247.  Contribution  was  de- 
creed as  to  traveling  expenses  in  Preston  v.  Campbell,  3  Hayw. 
(Tenn.)  20.  Let  the  decree  below  be  reversed,  and  decree  be 
entered  here  in  accordance  with  this  opinion.  One-fourth  of  all 
costs  will  be  paid  by  each  of  the  four  parties. 


d.   Securities  received  as  indemnity  by  one  surety  inure  to  the 
benefit  of  all  co-sureties  bound  by  the  same  contract. 

HOOVER  v.  MOWRER. 
84  Iowa  43;  50  N.  W.  Rep.  62;  35  Am.  St.  Rep.  293. 

Appeal  from  district  court,  Buchanan  county;  C.  P.  Cough, 
Judge. 

The  action  was  brought  at  law  on  a  promissory  note,  but 
transferred  to  equity.  A  cross-bill  was  filed  by  defendants 
Hoover  &  Hoover  against  defendants  Craig  &  Adams,  which 
was  dismissed.  A  judgment  on  the  note  was  rendered  against 
all  the  defendants.  An  appeal  was  taken  by  Hoover  &  Hoover 
from  the  order  dismissing  the  cross-bill.  No  appeal  was  taken 
from  the  judgment  on  the  note. 

BECK,  C.  J.  1.  The  note  upon  which  the  suit  was  originally 
brought  was  executed  by  J.  J.  Mowrer  and  his  wife,  Sarah 
Mowrer,  to  R.  W.  Adams,  E.  0.  Craig,  C.  Hoover,  Sr.,  and 
James  Hoover,  and  by  them  indorsed  to  plaintiff.  The  purpose 


358  SUBROGATION  AND  CONTRIBUTION. 

of  the  note  was  to  raise  money  for  the  makers  upon  the  credit 
of  the  payees  and  indorsers,  they  becoming  security  for  the 
makers.  The  note  was  the  renewal  of  prior  notes  made  by  the 
parties,  and  a  continuance  in  fact  of  the  prior  transaction.  The 
Hoovers  filed  a  cross-bill  alleging  that  since  the  commencement 
of  the  action  they  had  paid  the  note  to  the  holder;  that  the 
Mowrers  are  insolvent ;  and  that,  for  the  purpose  of  protecting 
all  the  sureties,  they  executed  to  Craig  &  Adams  a  mortgage 
upon  certain  town  lots  and  a  stock  of  general  merchandise  owned 
by  them,  and  they  took  possession  of  the  goods,  and  converted 
them  to  their  own  use.  Upon  this  cross-bill  the  Hoovers  pray 
that  Craig  &  Adams  be  required  to  account  for  the  value  of 
the  goods,  and  that  the  mortgage  inure  to  the  benefit  of  all  the 
sureties,  and  that  to  that  end,  and  for  the  purpose  of  protecting 
all,  proper  judgment  be  entered  in  their  favor  for  one-half  the 
value  of  the  goods.  Craig  &  Adams  deny  that  they  are  co- 
sureties of  the  Hoovers,  and  are  liable  to  share  with  them  the 
proceeds  of  the  mortgaged  property,  and  apply  any  part  thereof 
to  discharge  their  liability  on  the  note. 

2.  We  are  first  required  to  determine  whether  Craig  &  Adams 
may  appropriate  the  proceeds  of  the  mortgaged  property  to 
their  exclusive  benefit,  or  whether  the  mortgage  should  be  re- 
garded as  security  for  all  of  the  indorsers  of  the  note.  Counsel 
for  the  appellees  state  quite  correctly,  we  think,  the  rule  of 
law,  "that  securities  obtained  by  one  surety  inure  to  the  benefit 
of  all. ' '  But  he  limits  the  application  of  the  rule  to  cases  where 
the  securities  have  been  obtained  after  all  the  sureties  have 
become  liable,  and  without  any  agreement  to  that  effect  before 
they  become  liable.  We  think  these  conditions  alone  do  not  limit 
the  rule,  and  that  its  application  extends  to  all  cases  where  a 
surety  attempts,  by  fraud  or  unfair  dealings,  to  obtain  advan- 
tage over  his  co-surety.  The  authorities  cited  by  counsel  we 
think  do  not  support  his  position.  The  rule  exists  for  the  pro- 
tection of  the  sureties,  and  not  for  the  good  of  the  creditors  or 
the  principal  debtor.  By  the  contract  of  sureties,  they  became 
severally  bound  for  the  debt  of  the  principal.  But  it  is  plain 
that  each  should  contribute  equally  in  case  they  are  called  upon 
to  pay  the  debt.  One  cannot  in  any  way  escape  the  burden 
while  his  co-surety  is  not  relieved.  When  they  enter  into  the 
contract,  they  do  so  subject  to  that  equitable  rule,  which  be- 
comes, as  it  were,  a  contract  between  them.  Each  surety  is 


HOOVER  v.  MOWRER.  359 

authorized  to  rely  upon  this  rule  to  protect  himself  from  imposi- 
tion and  fraud  which  his  co-surety  and  principal  might  practice 
upon  him.  The  principal,  by  indemnifying  one  of  the  sureties, 
would  relieve  him  of  the  burden  of  the  suretyship  which  the 
other  still  carried.  This  would  be  unfair  and  inequitable.  In 
case  it  is  done  with  the  knowledge  and  consent  of  the  other 
surety,  it  would  thereby  be  relieved  of  objection,  for  the  surety 
could  not  complain  of  that  to  which  he  assents.  And  when 
sureties  do  not  become  bound  at  the  same  time  or  by  the  same 
contract,  as  when  additional  or  further  security  is  demanded, 
and  another  surety  becomes  bound  in  response  to  such  demand, 
the  sureties  can  doubtless  stipulate  for  indemnity;  for  by  so 
doing  they  do  not  prejudice  the  prior  or  subsequent  surety, 
whose  burden  is  not  affected  by  the  indemnity,  and  who,  as 
he  did  not  become  bound  by  the  same  contract  with  the  other 
surety,  cannot  claim  equality  with  him.  In  our  opinion,  when 
several  sureties  become  bound  by  the  same  instrument,  one  can- 
not arrange  with  his  principal  for  indemnity  for  himself  with- 
out the  knowledge  and  assent  of  the  others.  In  the  case  before 
us,  the  sureties  became  bound  by  the  same  instrument,  and  no 
assent  was  given  by  the  Hoovers  that  Craig  &  Adams  should 
obtain  indemnity  by  the  mortgage.  Neither  did  the  Hoovers 
have  knowledge  as  to  the  indemnity  obtained  by  Craig  &  Adams. 
In  our  opinion,  the  proceeds  of  the  security  acquired  by  them 
must  be  held  for  the  benefit  of  all  the  sureties.  The  district 
court  erred  in  dismissing  the  cross-bill. 

3.  It  appears  from  the  evidence  that  Craig  &  Adams  realized 
$1,126.42  out  of  the  goods.  They  paid  for  rent,  clerk  hire,  and 
other  expenses,  which  are  not  disputed  by  counsel  on  either  side, 
$158.75.  They  also  paid  $50  attorney's  fees  in  defending  against 
a  garnishment  proceeding  to  charge  them  for  the  mortgaged 
property.  As  these  fees  were  expended  in  protecting  the  prop- 
erty which  created  the  fund  now  in  question,  they  ought  to 
be  paid  out  of  that  fund.  A  mortgage  on  the  goods  to  Cook, 
amounting  to  $286.85,  was  paid  by  Craig  &  Adams.  It  was 
executed  by  J.  J.  Mowrer,  and  not  by  his  wife,  to  whom  the 
goods  had  been  transferred,  and  who  executed  the  mortgage 
to  Craig  &  Adams.  Counsel  for  the  Hoovers  insist  that  the 
mortgage  did  not  bind  the  property,  and'  therefore  should  not 
have  been  paid.  But,  as  J.  J.  Mowrer  was  in  possession  of  the 
goods  and  conducting  the  store  as  his  own,  it  is  hardly  probable 


360  SUBROGATION  AND  CONTRIBUTION. 

that  his  wife  could  successfully  set  up  a  claim  against  the 
mortgage  to  Cook.  It  is  not  shown  that  at  the  time  there  was 
any  lien  against  the  property  superior  to  the  mortgage  to  Cook. 
We  think  Craig  &  Adams  should  have  credit  for  the  amount 
paid  upon  the  mortgage,  $286.85.  This,  added  to  the  other  ex- 
penditures approved,  gives  $460.60,  the  sum  to  be  allowed  them. 
\r  They  claim  that  they  should  be  allowed  $202  on  account  of  a 
note  on  which  Adams  was  surety,  which  he  paid,  and  $75  owed 
directly  by  Mowrer  to  Adams.  The  mortgage  taken  by  Craig 
&  Adams  operated  for  the  benefit  of  all  the  sureties.  They 
ought  not  to  be  permitted  to  lessen  the  funds  realized  from  the 
mortgage  by  appropriating  it  to  their  individual  claims.  They 
stand  as  trustees  for  all  the  sureties,  and  are  required  to  use 
that  trust  fund  for  the  benefit  of  the  sureties  alone.  The  goods 
realized  $1,126.42;  expenses  and  Cook  mortgage,  $465.85;  leav- 
ing $660.57  to  be  paid  for  benefit  of  sureties.  One-half  of  this 
sum  the  Hoovers  are  entitled  to  recover,  for  which  a  decree  and 
judgment  will  be  entered  in  this  court.  The  Hoovers  recovered 
judgment  against  Craig  &  Adams  in  this  action  for  $847.96. 
No  complaint  is  made  thereof,  and  no  appeal  is  taken  there- 
from; it  is  not  for  consideration  in  this  case.  The  decree  dis- 
missing the  cross-bill  is  reversed. 


e.  !4/£er  an  obligation  has  been  fully  discharged  ~by  the  sureties 
paying  equal  amounts  the  doctrine  of  contribution  no  longer 
applies  and  one  may  receive  security  for  himself  alone. 

CRAMEE  v.  REDMAN.    1902. 
10  Wyoming  328,  68  Pac.  Rep.  1003. 

Error  to  the  District  Court,  Johnson  county ;  Hon.  Joseph  L. 
Stotts,  Judge. 

POTTER,  Chief  Justice.  The  parties  to  this  suit,  upon  the  fail- 
ure of  the  principal  debtor  to  pay  a  promissory  note  which  they 
had  signed  as  co-sureties,  paid  the  amount  thereof  in  equal  pro- 
portions, each  of  them  paying  the  sum  of  $1,071.50.  The  note 
had  been  given  January  15,  1889,  and  was  paid  by  said  sureties 
September  14,  1889.  In  1899,  probably  in  September  of  that 


CRAMER  v.  REDMAN.  361 

ij  _~    "I  ' 

year,  the  plaintiff  in  error  received  pfe2f210.91Jirom  the  net  pro- 
ceeds of  a  certain  contract  which  the  principal  debtor,  m  1898^ 
had  assigned  to  him.  The  sum  so  received  is  claimed  by  plaintiff 
in  error  to  be  the  amount,  including  interest  then  due  to  him, 
from  the  principal  debtor  on  account  of  the  money  advanced 
by  him  toward  the  payment  of  the  note  aforesaid.  This  suit 
was  instituted  by  defendant  in  error  for  an  accounting  and  to 
recover  one-half  of  the  sum  so  received  by  the  plaintiff  in  error. 
It  is  alleged  in  the  petition  that  the  principal  debtor  was  and  is 
insolvent,  and  that  up_on  the  payment  of  the  note  the  parties — 
plaintiff  and  defendant — agreed  ^orally,  in  consideration  of  the 
payment  of  an  equal  amount  by  each,  and  of  their  mutual  prom- 
ises, and  in  consideration  of  the  exercise  of  care,  vigilance  and 
energy  of  each  to  collect  the  amounts  paid  for  their  joint  benefit, 
and  the  giving  to  each  of  an  interest  in  the  debt  owing  him 
by  the  principal  debtor,  that  the  debt  should  be  held  by  said 
parties  as  one  owing  to  them  jointly,  and  that  they  would  exer- 
cise their  best  care  and  endeavor  to  collect  the  same  for  their 
joint  benefit,  and  would  divide  and  share  equally  the  sums  col- 
lected by  each,  until  the  said  debt  should  be  discharged  with 
interest.  The  plaintiff  in  error,  defendant  below,  by  his  answer, 
admitted  that  the  parties  had  been  co-sureties  and  as  such  had 
each  paid  an  equal  proportion  of  the  amount  due  on  the  note, 
but  alleged  that  thereupon  they  became  several  and  not  joint 
creditors  of  the  principal  maker,  and  denied  the  making  of  the 
agreement  set  out  in  the  petition.  He  further  alleged  that  the 
contract  out  of  which  he  had  collected  the  money  in  controversy 
had  been  assigned  to  him  to  secure  the  amount  paid  by  him  upon 
the  note  with  interest. 

The  case  was  tried  to  the  court  without  a  jury,  and  the  plain- 
tiff, defendant  in  error  here,  was  awarded  judgment  for  $1,- 
105.45  and  costs.  Motion  for  a  new  trial  filed  by  the  defendant 
was  overruled,  and  the  case  comes  to  this  court  on  error. 

The  right  of  the  plaintiff  below  to  recover  must  depend  upon 
the  agreement,  if  any,  made  between  the  defendant  and  himself 
at  the  time  they  paid  the  note.  He  may  not  rely  upon  the 
ordinary  equities  applicable  between  co-sureties,  for  the  reason 
that,  upon  the  payment  of  the  note  by  the  sureties  in  equal 
proportions,  the  equities  no  longer  existed.  It  is  true  that,  as 
a  general  rule,  any  securities  in  the  hands  of  a  surety,  as  well 
as  any  indemnity  received  by  him,  will  inure  to  the  benefit  of 


362  SUBROGATION  AND  CONTRIBUTION. 

all  the  sureties.  (1  Story's  Eq.  Juris.  §499;  Harris  on  Subro- 
gation, §§186,  200,  207,  379.)  The  ground  of  relief  in  such 
cases  does  not  stand  upon  contract  express  or  implied,  but  arises 
from  principles  of  equity  independent  of  contract.  Where,  how- 
ever, the  debt  is  paid  by  several  sureties  in  equal  proportions, 
the  equities  between  them  as  co-sureties  cease,  and  each  becomes 
an  independent  creditor  of  the  principal  for  the  amount  he 
may  have  paid;  so  that  if  one  of  them  subsequently  receives 
indemnity  from  the  principal  for  his  own  debt,  the  others  are 
not  entitled  to  participate  therein,  such  indemnity  not  proceed- 
ing from  securities  held  by  the  surety  or  creditor  previous  to 
payment  of  the  debt.  (Harris  on  Subrogation,  §  379 ;  Urbahn 
v.  Martin  (Tex.  Civ.  App.),  46  S.  W.  291;  Hall  v.  Cushman, 
16  N.  H.  462;  Harrison  v.  Phillips,  46  Mo.  520.) 

But  there  can  be  no  doubt  that  the  sureties,  upon  so  paying 
the  debt,  may  contract  between  themselves  for  an  equal  division 
of  whatever  may  afterward  be  collected  by  either  one  upon  the 
debt  from  the  principal,  each  agreeing  that  any  amount  collected 
by  him  shall  be  collected  for  the  joint  benefit  of  all,  and  that 
the  others  shall  be  entitled  to  share  equally  therein  until  the 
obligation  of  the  principal  debtor  to  them  shall  be  satisfied. 
(Smith  v.  Hicks,  5  Wend.  48.)  And  in  such  case  the  mutual 
promises  constitute  a  good  and  sufficient  consideration.  (Phil- 
pot  v.  Gruninger,  14  Wall.  577 ;  Morrow  v.  Jones,  41  Neb.  867 ; 
Taylor  v.  Smith,  116  N.  C.  531;  Phillips  v.  Preston,  5  How. 
(U.S.)  278;  Briggs  v.  Tillotson,  8  Johns.  304;  Clark  on  Con- 
tracts 165;  1  Parsons  on  Contracts  (5th  Ed.)  448.)  In  the 
case  of  Smith  v.  Hicks,  supra,  it  was  held  that  where  two  per- 
sons agree  equally  to  bear  and  pay  the  losses  and  damages 
which  may  be  sustained  in  consequence  of  one  of  them  becoming 
special  bail  for  a  third  person,  and  after  they  have  equally  con- 
tributed to  the  payment  of  the  debt,  one  of  them  is  refunded 
the  amount  paid  by  him,  he  is  answerable  to  the  other  for  a 
moiety  of  the  money  received  by  him. 


PACE  v.  PACE.  363 


/.  A  co-surety  having  paid  the  whole  debt  will  be  given  judg- 
ment against  the  insolvent  estate  of  his  co-surety  for  full 
amount  paid  and  may  receive  dividends  till  he  is  repaid  one- 
half  of  amount  paid  by  him. 

PACE  v.  PACE.     1898. 
95  Va.  792;  30  8.  E.  Rep.  361;  44  L.  E.  A.  459. 

Appeal  from  corporation  court  of  Danville. 

Action  by  James  B.  Pace  against  the  administrator  of  John 
E.  Pace's  estate  to  determine  his  claims  as  co-surety  on  a  note 
paid  by  him.  From  a  judgment  granting  plaintiff  leave  to 
prove  for  half  of  his  claim,  plaintiff  appeals.  Eeversed. 

HARRISON,  J.  The  facts  of  this  case,  in  brief,  are  that  on 
April  7,  1893,  one  T.  J.  Talbott  (under  the  name  of  Pace,  Tal- 
bott  &  Co.),  John  R.  Pace,  and  James  B.  Pace  made  a  note  for 
$16,000,  payable  to  William  F.  Cheek  or  order,  120  days  after 
date.  T.  J.  Talbott  was  the  principal  in  the  note,  and  John  E. 
Pace  and  James  B.  Pace  co-sureties.  T.  J.  Talbott  died  in  the 
fall  of  1894,  entirely  insolvent.  Prior  to  his  death,  to  wit,  on 
October  9,  1893,  John  E.  Pace  died,  leaving  an  estate  not  suf- 
ficient to  pay  more  than  50  cents  on  the  dollar  of  his  debts. 
In  May,  1894,  this  suit  was  brought  to  administer  John  E. 
Pace's  estate,  and  a  decree  of  reference  was  entered  in  July, 
1S94.  On  the  19th  of  September,  1895,  being  pressed  by  the 
executors  of  the  creditor,  "William  F.  Cheek,  James  B.  Pace 
took  up  the  note  in  question  by  paying  $16,551.57,  the  entire 
amount,  principal  and  unpaid  interest,  to  that  time.  Thereupon 
James  B.  Pace  tendered  proof  of  these  facts  to  the  commissioner 
in  this  suit,  and  claimed  to  rank  in  the  distribution  of  John  E. 
Pace's  estate  for  the  whole  of  the  debt  so  paid  by  him,  until  he 
had  received  one-half  of  the  amount  paid  by  him;  but  the 
commissioner  reported  that  he  could  only  rank  for  one-half  the 
debt,  and  an  exception  made  by  James  B.  Pace  on  that  score 
was  overruled  by  the  court  below,  to  which  ruling  this  appeal 
was  taken. 

The  contention  of  the  appellee  is  that  J.  B.  Pace  could  not 
rank  against  the  estate  of  his  co-surety  for  the  whole  debt  when 
the  co-surety  only  owed  him  one-half  of  the  debt;  in  other 


364  SUBROGATION  AND  CONTRIBUTION. 

words,  that  appellant  had  no  right  to  prove  for  the  one-half  of 
the  debt  which  he  himself  was  primarily  bound  to  pay. 

The  question  presented  is  an  important  one  in  the  administra- 
tion of  insolvent  estates,  and  there  is  some  conflict  of  opinion 
in  respect  thereto.  We  are,  however,  satisfied  that  the  view 
taken  by  the  learned  counsel  for  the  appellant  is  sustained  by 
the  best  reason  and  the  weight  of  authority. 

In  Enders  v.  Brune,  4  Rand.  (Va.)  447,  Judge  CARR,  in  dis- 
cussing the  doctrine  of  substitution,  says:  "It  has  nothing  of 
form,  nothing  of  technicality,  about  it;  and  he  who,  in  admin- 
istering it,  would  stick  in  the  letter,  forgets  the  end  of  its  crea- 
tion, and  perverts  the  spirit  which  gave  it  birth.  It  is  the 
creature  of  equity,  and  real  essential  justice  is  its  object." 

The  doctrine  is  well  settled  that  the  surety  has  the  right  of 
substitution  against  the  estate  of  his  principal,  where  payment 
of  a  preferred  debt  has  been  made  by  such  surety  after  the 
death  of  the  principal;  and  the  rule  of  substitution  for  the 
purpose  of  enforcing  contribution  among  co-sureties  is  not  dif- 
ferent.//One  surety  who  pays  the  common  debt  is  entitled  to~  / 
be  subrogated  to  all  the  rights  and  remedies  of  the  creditor,  as  ^ 
against  his  co-sureties,  in  precisely  the  same  manner  as  against 
the  principal  debtor. /^/Robertson  v.  Trigg,  32  Grat.  76 ;  Dering 
v.  Earl  of  Winchelsea,  1  White  &  T.  Lead.  Gas.  Eq.  (3d  Am. 
Ed.)  p.  131,  and  notes. 

In  Ex  parte  Stokes,  De  Gex  618,  Stokes,  the  creditor,  held 
a  bond  executed  by  a  principal  and  three  sureties.  Two  of  the 
sureties,  Clark  and  Phillips,  became  bankrupts,  and  Stokes,  the 
creditor,  proved  against  their  estates.  Thereafter  the  principal 
debtor  compounded  with  his  creditors;  and  the  other  surety, 
Thomas  Charles  Ord,  executed  an  assignment  for  the  benefit 
of  his.  Stokes,  the  creditor,  by  dividends,  received  from  the 
principal  debtor,  from  the  estate  of  Clark,  one  of  the  sureties, 
and  from  Thomas  Charles  Ord,  realized  his  whole  debt,  to  the 
payment  whereof  the  remaining  surety,  Phillips,  contributed 
nothing.  The  creditor*  realized  from  the  estate  of  Thomas 
Charles  Ord  10s.  in  the  pound,  whereas  the  just  proportion  pay- 
able by  each  surety  was  only  4s.  lOd.  in  the  pound.  Thereupon 
the  assignees  of  Thomas  Charles  Ord  petitioned  for  leave  to 
stand  in  the  place  of  the  creditor  for  his  entire  debt  as  against 
the  estate  of  Phillips,  which  had  paid  nothing,  so  as  to  realize 


PACE  v.  PACE.  365 

from  that  estate  its  just  proportion,  viz.,  4s.  lOd.  in  the  pound. 
The  petition  was  allowed,  Sir  J.  L.  Knight  BRUCE  saying: 

"The  question  then  substantially  is  whether,  as  between  the 
estates  of  the  two  sureties,  when  (one  of  them  having  become 
bankrupt)  the  creditor  has  proved  the  debt  under  the  fiat,  and 
has  afterwards  been  paid  in  full,  partly  by  the  principal  debtor, 
and  partly  by  the  surety,  not  a  bankrupt,  the  latter  has  the 
right  to  use  the  proof  for  the  purpose  of  obtaining  from  the 
bankrupt's  estate  that  amount  of  contribution  to  which  the 
bankrupt  is,  or  but  for  the  bankruptcy  would  have  been,  liable, 
so  far  as  the  proof  can  furnish  means  for  that  end ;  and  I  think 
that  he  has. 

"Where  several  persons  are  liable,  each  in  solido,  to  a  debt, 
the  creditor  may  enforce  payment  in  a  manner  which,  as  be- 
tween the  debtors  themselves,  is  unjust.  This  must  sometimes 
happen;  but  in  such  cases  is  it  not  the  function  and  the  duty 
of  a  court  of  justice,  at  least  of  a  court  of  equity,  to  place 
them  in  the  same  situation,  between  themselves,  as  if  the  creditor 
had  enforced  his  rights  against  them  in  a  manner  conformable 
to  their  rights  against  each  other,  so  far  as  it  can  be  done? 
Generally  speaking,  the  law  of  this  country,  as  I  apprehend, 
answers  that  question  in  the  affirmative. 

"Now  in  the  present  case,  had  Mr.  Stokes  regulated  his  pro- 
ceeding in  such  a  manner,  a  portion  of  what  he  has  received 
from  Mr.  Thomas  Charles  Ord's  estate  would  have  been  taken 
by  Mr.  Stokes  from  Mr.  Phillip's  estate,  if  available  for  the 
purpose.  The  mere  circumstance  that  it  has  not  until  the  pres- 
ent time  become  practically  available  for  the  purpose  is,  I  con- 
ceive, nothing. 

"This  has  not  been  done;  but  justice  requires,  I  apprehend, 
that  the  nearest  possible  approach  to  that  state  of  things  shall 
take  place,  which  must,  I  suppose,  be  effected  by  allowing  the 
claim  intended  to  be  made  by  the  present  petition.  Mr.  Clark's 
estate,  unless  I  mistake,  has  paid  5s.  in  the  pound,  but  not 
more;  while  I  collect  that  Mr.  Thomas  Charles  Ord's  estate 
has  paid  10s.  in  the  pound,  and  Mr.  Phillips'  estate  as  yet 
nothing 

"I  repeat  that  it  was  originally  equitable  between  these  sure- 
ties or  their  estates  that  the  benefit  of  the  proof  or  some  portion 
of  it  should  go  in  diminution  of  Mr.  T.  Charles  Ord's  burden; 
that,  in  my  view,  it  was  not  competent  to  Mr.  Stokes,  by  any 


336  SUBROGATION  AND  CONTRIBUTION. 

election  upon  his  part,  to  deprive  Mr.  Thomas  Charles  Ord's 
estate  of  that  right;  that  "it  could  not,  I  think,  be  defeated 
by  delays  and  difficulties  occurring  in  the  liquidation  or  collec- 
tion of  Mr.  Phillips'  assets;  and  that  the  right  appears  to  me 
substantially  to  have  continued  and  now  to  exist." 

In  the  case  of  Morgan  v.  Hill  (1894),  3  Ch.  400,  a  debt  was 
owing  by  a  principal  debtor  and  five  sureties.  Nothing  could 
be  realized  from  the  principal  debtor,  or  from  one  of  the  sure- 
ties, and  only  a  very  insignificant  sum  from  another  of  the 
sureties.  So,  three  of  the  sureties  were  left  to  bear  the  liability. 
One  of  these  three  made  an  assignment,  which,  after  the  payment 
of  specified  prior  claims,  provided  for  the  payment  of  his  re- 
maining debts  ratably.  The  creditor  presented  his  claim  for 
payment  to  the  trustees  in  the  assignment,  but,  before  the  trus- 
tees paid  anything  thereon,  the  debt  was  paid  by  the  other  two 
sureties,  who  subsequently  also  took  from  the  creditor  an  as- 
signment of  his  debt  and  securities.  These  two  sureties  then 
claimed  the  right  to  receive  a  dividend  from  the  assigned  estate 

Of    their    fn-snrpty    QJI    UiPjvhnlfr    flmminf,    nf    the    debt    paid    by 

them,  until  they  had  received  one-third  thereof,  that  being  the 
just  proportion  payable  by  each  surety;  and  this  claim  was 
allowed  by  KEKEWICH,  J.,  and  on  appeal  his  order  was  af- 
firmed. 

KEKEWICK,  J.,  who  decided  the  case  in  the  lower  court,  said: 
"Two  out  of  three  sureties  paid  the  whole  debt,  and,  having 
so  done,  they  are  entitled  to  stand  in  the  shoes  of  the  creditor 
whose  whole  debt  they  have  paid.  That  would  seem  to  be  ac- 
cording to  natural  justice;  but,  whether  it  be  so  or  not,  at  all 
events  it  is  strictly  in  accordance  with  the  provisions  of  the 
mercantile  law  amendment  act  of  1856  (19  &  20  Viet.  c.  97). 

"A  surety  in  such  case  is  to  stand  in  the  place  of  the  creditor, 
and  to  use  all  the  remedies,  and  if  need  be,  and  upon  a  proper 
indemnity,  to  use  the  name,  of  the  creditor  in  any  action  to 
obtain  indemnification." 

The  reference  of  the  learned  judge  to  the  mercantile  law 
amendment  act,  as  justifying  his  conclusion,  if  not  justified  by 
its  conformity  to  "natural  justice,"  is  a  circumstance  that  does 
not  detract  from  the  weight  of  this  case  as  an  authority  in  this 
state,  because  that  act  was  passed  to  do  away  with  the  doctrine 
laid  down  in  Copis  v.  Middleton,  which  was  disapproved  by  this 
court  in  Powell's  Ex'rs  v.  White,  11  Leigh,  309,  in  a  learned 


PACE  v.  PACE.  367 

opinion  by  Judge  Tucker,  and  the  act  referred  to  simply  de- 
clared the  law  in  England  to  be  what  it  had  theretofore  been 
under  our  decisions. 

In  Hess's  Estate,  69  Pa.  St.  272,  the  precise  question  involved 
here  was  presented,  and  the  supreme  court  of  Pennsylvania  held 
that  the  surety  paying  the  debt,  after  the  death  of  his  co-surety, 
was  entitled  to  prove  against  his  estate  for  the  entire  amount 
of  the  debt.  The  court  says : 

"The  debts  paid  by  Christian  Lintner,  and  transferred  to 
him,  stand  exactly  in  the  same  position  to  the  assets  of  the  de- 
cedent, Henry  Hess,  as  if  presented  by  the  creditors  themselves ; 
their  status  being  fixed  by  his-  death,  and  nothing  having  oc- 
curred to  change  or  reduce  the  amount.  So  far  as  they  existed 
as  debts  payable  out  of  the  estate,  no  part  of  them  is  paid  or 
extinguished,  for  the  effect  of  subrogation  is  to  consider  them 
in  full  life,  and  enjoying  all  the  rights  of  the  original  creditors." 

"We  regard  the  administrators  of  the  decedent  as  trustees, 
and  the  creditors  as  cestuis  que  trustent,  owners  of  their  share 
of  the  assets,  and  which,  applying  the  principle  in  Miller's  Ap- 
peal, 35  Pa.  St.  481,  and  Patten's  Appeal,  45  Pa.  St.  151,  passed 
to  the  co-surety,  who  stepped  into  their  shoes  when  he  paid  the 
amount  due  on  such  claims. ' ' 

In  the  case  of  Miller's  Appeal,  35  Pa.  St.  481,  an  insolvent 
debtor  had  executed  a  general  assignment  for  the  benefit  of  all 
his  creditors.  Subsequently,  the  assignor  became  entitled  to  a 
legacy  which  was  attached  by  one  of  the  creditors;  and  from 
that  attachment  he  realized  a  portion  of  his  debt.  It  was  held 
that  such  creditor  was,  notwithstanding,  entitled  to  a  dividend 
of  the  assigned  estate  on  the  whole  amount  of  his  claim  as  it 
stood  at  the  time  the  assignment  was  made. 

In  this  case,  Judge  STRONG  (afterwards  of  the  supreme  court 
of  the  United  States)  said:  "By  the  deed  of  assignment  the 
•  equitable  ownership  of  all  the  assigned  property  passed  to  the 
creditors.  They  became  joint  proprietors;  and  each  creditor 
owned  such  a  proportionate  part  of  the  whole  as  the  debt  due 
to  him  was  of  the  aggregate  of  the  debts.  The  extent  of  his 
interest  was  fixed  by  the  deed  of  trust.  It  was,  indeed,  only 
equitable;  but,  whatever  it  was,  he  took  it  under  the  deed, 
and  it  was  only  as  a  part  owner  that  he  had  any  standing  in 
court  when  the  distribution  came  to  be  made.  ...  It 
amounts  to  very  little  to  argue  that  Miller's  recovery  of  the 


368  SUBROGATION  AND  CONTRIBUTION. 

legacy  operated  with  precisely  the  same  effect  as  if  voluntary 
payment  had  been  made  by  the  assignor  after  the  assignment; 
that  is,  that  it  extinguished  the  debt  to  the  amount  recovered. 
No  doubt,  it  did.  But  it  is  not  as  creditor  that  he  is  entitled 
to  the  distributive  share  of  the  trust  fund.  His  rights  are 
those  of  an  owner,  by  virtue  of  the  deed  of  assignment.  The 
amount  of  the  debt  due  to  him  is  important  only  so  far  as  it 
determines  the  question  of  his  ownership.  The  reduction  of 
that  debt,  therefore,  after  creation  of  the  trust,  and  after  his 
ownership  had  become  fixed,  it  would  seem,  must  be  im- 
material." 

There  are  many  cases  holding  that  where  a  creditor  of  .an 
insolvent  person,  who  is  dead,  or  has  made  an  assignment  for 
the  general  benefit  of  creditors,  holds  collateral  security  for  his 
debt,  and,  after  the  death  or  the  assignment  of  his  debtor, 
realizes  on  the  collaterals,  he  may,  notwithstanding,  prove  against 
the  decedent's  estate  or  the  assigned  estate  for  the  full  amount 
of  his  debt  as  it  stood  at  the  time  of  the  death  or  assignment. 
The  grounds  upon  which  these  cases  proceed  are  ably  set  forth 
in  the  opinion  of  Judge  TAFT  in  Bank  v.  Armstrong,  59  Fed. 
380,  8  C.  C.  A.  163,  in  which  he  reviews  all  the  authorities. 

The  only  case  involving  the  question  here  presented,  cited  by 
appellee,  is  that  of  Institution  v.  Hathaway,  134  Mass.  69.  In 
this  case  the  holder  of  a  note,  by  an  arrangement  with  a  solvent 
surety  thereon,  proved  the  note  against  the  insolvent  estate  of 
another  surety,  and  then  assigned  the  note  with  his  claim  against 
the  estate  to  the  solvent  surety,  who  paid  the  holder  in  full. 
The  court  held  that  this  amounted  to  a  payment  of  the  note, 
ordered  the  proof  to  be  expunged,  and  only  allowed  the  surety 
to  prove  one-half  of  the  claim.  In  this  conclusion  we  cannot 
concur.  There  are  three  authorities  cited  in  its  support,  which 
are  not  in  our  judgment,  entitled  to  the  weight  given  them. 
The  one  chiefly  relied  on  is  Maxwell  v.  Heron,  a  Scotch  case, 
which,  if  applicable,  has  been  overruled  in  England,  and  the 
law  there  settled,  as  we  have  seen,  to  the  contrary. 

It  further  appears  that  the  decisions  of  the  Massachusetts 
court  upon  analogous  questions  have  not  been  in  accord  with 
the  views  of  this  and  other  courts  upon  like  questions. 

An  important,  if  not  yital,  objection  to  the  Massachusetts  view 
of  this  question,  is  that  the  rights  of  the  surety,  instead  of  being 
fixed  and  certain,  are  made  to  depend  upon  accident  or  upon 


PACE  v.  PACE.  309 

the  caprice  of  the  creditor.  It  encourages  a  policy  of  obstruction 
in  the  administration  of  estate";  for,  if  those  interested  in  the 
insolvent  estate  can  delay  its  settlement  until  the  creditor  de- 
mands his  debt  from  the  solvent  surety,  they  reap  the  advantage 
by  having  a  smaller  debt  to  share  with  them  in  its  distribution. 
On  the  other  hand,  temptation  is  held  out  for  a  corresponding 
effort  on  the  part  of  the  solvent  surety  to  avoid  paying,  until  the 
creditor  has  received  such  dividends  as  the  insolvent  estate  will 
pay,  because  the  amount  for  which  he  is  liable  is  thereby 
reduced.  It  gives  opportunity  to  the  creditor,  by  collusion  or 
otherwise,  to  further  the  interest  of  one  surety  at  the  expense 
of  the  just  and  equal  rights  of  the  co-surety. 

Results  like  these,  which  depend,  not  upon  the  rights  of  the 
parties  fixed  by  law,  but  upon  the  superior  skill  of  one  over 
the  other  in  maneuvering  for  position,  or  upon  the  will  and 
caprice  of  the  creditor,  or  upon  mere  accident,  cannot  be 
founded  upon  sound  principles. 

In  "Watts  v.  Kinney,  3  Leigh,  272,  Judge  TUCKER,  speaking  for 
this  court,  says:  The  surety,  in  paying  the  debt,  "is  governed 
by  the  law  of  this  court.  Even  on  entering  into  his  engagement 
as  surety  he  looks  to  its  well-established  principles.  He  knows, 
if  he  pays  the  debt  to  the  obligee,  he  will  stand  in  the  obligee's 
shoes.  He  knows  he  will  be  subrogated  to  all  the  rights  of  the 
obligee,  as  they  subsist  at  the  time  he  makes  his  payment.  He 
knows  that  a  court  of  equity  looks  not  to  form,  but  to  substance ; 
that  it  looks  to  the  debt  which  is  to  be  paid,  not  to  the  hand 
which  may  happen  to  hold  it;  that  the  fund  charged  with  its 
payment  shall  be  so  applied,  whosoever  may  be  the  person 
entitled;  and  that  it  considers  a  debt  as  never  discharged 
until  it  is  discharged  by  payment  to  the  proper  person,  and  by 
the  proper  person.  He  knows  that  that  court,  which  permits 
no  act  of  a  trustee  to  prejudice  the  cestui  que  trust,  will  not 
permit  one  who  stands  in  the  relation  of  the  creditor  or  obligee 
to  the  surety  to  bar  him  of  those  rights  which  the  principles  of 
equity  have  secured  to  him.  He  is  conscious  that  his  rights  do 
not  depend  upon  the  caprice  of  the  creditor,  or  the  whim  of  an 
executor,  or  the  sense  of  right  of  other  creditors,  but  rest  upon 
the  immutable  principles  of  justice  and  equity;  and,  in  making 
his  payment,  he  does  it  in  the  confidence  that  he  will  be 
entitled  to  be  indemnified  to  the  full  amount  to  which  his 
creditor  could  have  charged  the  assets  of  the  principal." 
24 


370  SUBROGATION  AND  CONTRIBUTION. 

These  considerations  bring  us,  in  the  case  at  bar,  to  the  con- 
clusion that  John  R.  Pace's  estate  and  James  B.  Pace  were  each 
bond  in  solido  to  their  common  creditor  William  F.  Cheek  for 
the  entire  amount  of  the  debt  in  question;  that,  at  the  death 
of  John  R.  Pace,  the  rights  of  his  creditors  became  fixed,  the 
assets  of  the  state  passing,  as  a  trust  fund,  into  the  hands  of  his 
representatives  charged  with  the  payment  of  his  debts;  that, 
subject  to  costs  of  administration  and  preferred  debts,  William 
F.  Cheek  then  became  entitled  to  an  interest  in  said  estate,  not 
then  ascertained,  but  capable  of  being  made  certain,  bearing 
such  proportion  to  the  entire  assets  as  his  debt  bore  to  the 
entire  indebtedness;  that  when  James  B.  Pace,  the  surety,  paid 
his  debt,  he  became  at  once  subrogated  to  all  the  rights,  reme- 
dies, and  means  of  payment,  in  respect  thereto,  that  were  pos- 
sessed by  the  creditor,  and  had  the  right  to  prove,  as  the 
creditor  could  have  done,  the  entire  debt  against  the  estate  of 
his  co-surety  John  R.  Pace,  and  to  receive  dividends  upon  the 
basis  of  the  entire  debt  until  reimbursed  that  half  of  the  com- 
mon burden  belonging  to  the  co-surety.  This  conclusion  works 
no  injustice  to  the  other  creditors  of  John  R.  Pace.  Their 
rights,  which  became  fixed  at  the  death  of  the  debtor,  remain 
unimpaired.  They  had  no  interest  in  that  proportion  of  the 
assets  belonging  to  William  F.  Cheek.  That  interest  was  as 
distinct  and  separate  from  theirs  as  if  it  had  been  already 
segregated  'and  set  apart  for  the  benefit  of  William  F.  Cheek. 
They  could  not  add  to  or  take  from  it  while  it  was  the  prop- 
erty of  Cheek ;  nor  can  they  do  so  now  that  it  stands,  in  equity, 
as  indemnity  for  the  surety  who  has  paid  it. 

For  these  reasons,  the  decree  appealed  from  must  be  reversed, 
and  the  cause  remanded,  to  be  proceeded  with  in  accordance 
with  the  views  expressed  in  this  opinion. 

CARDWELL,  J.,  absent.  BUCHANAN,  J.,  absent,  interested  in 
case  involving  same  question. 


ROBERTS  v.  HAWKINS.  371 


CHAPTER  XI. 

GUARANTY  OF  PAYMENT  OR  COLLECTION. 

a.  A  guarantor  of  payment  is  immediately  and  absolutely  liable 
to  the  creditor. 

EGBERTS  v.  HAWKINS.     1888. 
70  Mich.  566;  38  N.  W.  575. 

Error  to  Superior  Court  of  Grand  Rapids.     Assumpsit. 
LONG,  J.    January  12,  1884,  one  Lyman  D.  Follett  made  his 
promissory  note  as  follows: 

"$1,000. 

Grand  Rapids,  Mich.,  January  12,  1884. 

One  year  after  date,  I  promise  to  pay  to  the  order  of  Helen 
M.  Roberts  one  thousand  dollars,  with  interest  at  eight  per  cent, 
per  annum.  Value  received.  LYMAN  D.  FOLLETT." 

And  defendant  signed  an  indorsement  on  the  back  thereof,  as 
follows : 

"For  value  received,  I  hereby  guarantee  the  paymeniLof  the 
within.  Value  received.  L.  E.  HAWKINS." 

On  the  delivery  of  this  note  to  plaintiff,  she  paid  Follett 
$1,000.  January  8,  1885,  seven  days  before  this  note  became 
due,  Follett  paid  one  year's  interest;  and  neither  at  that  time, 
nor  at  the  maturity  of  the  note,  was  the  same  presented  to 
Follett  or  defendant  for  payment.  No  notice  of  non-payment 
was  given  defendant  then  or  at  any  time  prior  to  June  8,  1887. 
January  25,  1886,  Follett  paid  the  interest  for  the  next  year, 
and  January  17,  1887,  for  the  year  following.  About  June  8, 
1887,  the  note  being  then  two  years  and  five  months  overdue, 
it  was  first  presented  to  defendant,  and  payment  demanded  and 
refused.  August  13  this  suit  was  brought. 

On  the  trial,  plaintiff,  having  proved  the  note  and  guaranty, 
and  its  non-payment,  rested.  Defendant  then  sought  to  make 
his  defense  as  pleaded,  and  offer  to  show: 

1.  That  he  was  an  accommodation  guarantor,  without  consid- 
eration or  security. 

2.  That,  at  or  about  the  maturity  of  the  note,  he  inquired  of 
the  maker  of  the  note  if  it  was  paid,  and  was  told  it  was. 


372       GUARANTY  OF  PAYMENT  OR  COLLECTION. 

3.  That  neither  at  the  maturity  of  the  note,  nor  at  any  sub- 
sequent time,  prior  to  June. 8,  1887,  was  any  notice  of  the  non- 
payment of  this  note  given  to  defendant,  nor  any  demand  male 
on  him  for  the  payment  thereof. 

4.  That  at  the  maturity  of  this  note,  and  for  some  consider- 
able time  thereafter — at  least  a  year — Follett,  the  maker  of  the 
note,  was  solvent,  and  had  property  out  of  which  defendant 
could  have  procured  him  to  pay  the  note  or  obtained  security. 

5.  That  when  defendant,  on  June  8,  1887,  learned  of  the 
non-payment  of  this  note,  the  maker  was  insolvent,  out  of  the 
jurisdiction,  and  that  he  could  then  obtain  no  security  or  pay- 
ment. 

The  court  directed  a  general  verdict  for  plaintiff  on  all  the 
counts  of  the  declaration.  Judgment  being  entered  on  the 
verdict  in  favor  of  plaintiff  for  the  amount  of  the  note  and 
interest,  defendant  brings  the  case  into  this  court  by  writ  of 
error. 

The  declaration  contains  three  counts.  The  first  alleges  the 
guaranty,  demand  of  the  maker  at  maturity,  non-payment  and 
notice  of  said  demand  and  non-payment  to  defendant  at  ma- 
turity. 

The  second  alleges  the  guaranty,  the  refusal  by  maker  to  pay 
at  maturity,  and  notice  to  defendant,  at  maturity,  of  maker's 
refusal. 

The  third  is  the  common  counts  in  assumpsit,  with  copy  of 
note  annexed,  and  an  alleged  indorsement  on  back  of  L.  E. 
Hawkins,  without  any  guaranty  over  it. 

The  plea  is  the  general  issue,  with  notice  of  the  defense  of 
release  by  plaintiff's  failure  to  give  notice  of  non-payment  to 
defendant,  and  the  consequent  damage  and  loss  to  him  thereby. 

It  is  claimed  that  the  court  erred  in  receiving  the  note  and 
guaranty  in  evidence  under  the  third  count  in  plaintiff's  declara- 
tion, for  the  reason  that  the  note  and  guaranty  offered  were  not 
the  note  and  guaranty  set  forth  in  that  count ;  that  the  contract 
set  out  in  plaintiff's  third  count  was  that  defendant  had  in- 
dorsed his  name  in  black  on  the  back  of  the  note,  not  payable 
to  his  order;  and  that  this  would  make  him  a  maker  of  the 
note,  and  liable  as  such,  while  the  note  offered  had  a  guaranty 
of  payment  indorsed  thereon.  Defendant  claimed  that  this  was 
a  variance,  and  that  the  court  should  have  excluded  the  guar- 


ROBERTS  v.  HAWKINS.  373 

anty  under  this  third  count,  and  confined  the  verdict  to  a  recov- 
ery under  the  first  two  counts. 

As  we  view  the  case,  however,  this  objection  has  no  force. 
The  plaintiff  being  entitled  to  recover  under  the  first  and 
second  counts  of  the  declaration,  the  defendant  was  not  preju- 
diced in  the  course  taken  by  the  court  in  not  withdrawing  all 
consideration  of  the  case  under  the  third  count.  The  declara- 
tion was  sufficient  in  the  first  two  counts  to  allow  a  recovery 
thereunder. 

The  chief  error  complained  of  is  the  exclusion  of  the  entire 
defense,  and  the  direction  of  a  verdict  for  plaintiff.  On  the 
trial  the  plaintiff  proved  by  a  witness  the  application  for  the 
loan,  the  loaning  of  the  money,  the  giving  of  the  note  and  guar- 
anty, and,  after  reading  the  note  and  guaranty  in  evidence, 
rested.  The  defendant  was  then  called  and  sworn  as  a  witness 
in  his  own  behalf,  and  was  asked  by  his  counsel: 

"Q.  When  that  note  became  due,  in  January,  1885 — Jan- 
uary 15 — was  any  notice  given  you  of  the  fact  that  it  remained 
unpaid  ? ' ' 

To  this  question  counsel  for  plaintiff  objected,  that  the  same 
was  irrelevant  and  immaterial;  that  the  defendant  was  not  an 
indorser  nor  guarantor  of  collection,  but  of  payment  of  the  note. 

Counsel  for  the  defendant  then  offered  to  show  by  the  witness 
that  he  had  no  notice  of  the  non-payment  of  the  note  prior  to 
June  8,  1887 ;  that  he  was  an  accommodation  guarantor  without 
security;  that,  at  or  near  the  maturity  of  the  note,  he  inquired 
of  the  maker,  and  was  informed  that  it  was  paid;  that,  at  that 
time,  the  maker  of  the  note  was  solvent,  and  for  some  consid- 
erable time  thereafter — probably  a  year — and  that  the  defend- 
ant could,  if  he  had  any  knowledge  of  its  non-payment,  have 
secured  himself,  or  procured  the  maker  to  pay  it;  that,  when 
the  defendant  learned  of  the  non-payment,  of  the  note,  the 
maker  was  insolvent,  and  out  of  the  State,  and  no  security  could 
have  been  obtained  by  the  defendant ;  the  counsel  then  saying — 

"That  this,  of  course,  is  the  line  of  defense  marked  out  by 
the  notice  in  the  pleadings.  It  is  all  covered  by  my  brother's 
argument;  and,  if  we  have  no  right  to  show  that  defense,  then, 
of  course,  there  remains  nothing  but  for  the  court  to  direct 
a  verdict  for  the  amount  of  the  note,  and  interest/' 

The  court  sustained  the  objection,  and  directed  a  verdict  for 
plaintiff. 


374      GUARANTY  OF  PAYMENT  OR  COLLECTION. 

In  considering  the  case,  the  defendant's  offer  to  prove  this 
state  of  facts  must  be  taken  as  true.  Clay,  etc.,  Ins.  Co.  v.  Manu- 
facturing Co.,  31  Mich.  356.  Under  this  offer  by  the  defendant, 
the  issue  is  made:  Is  a  person  not  being  a  party  to  a  promis- 
sory note,  who  at  its  date  and  before  delivery,  and  for  the  pur- 
pose of  having  a  loan  made  upon  the  strength  of  his  guaranty, 
guarantees  the  payment  of  such  note,  liable  thereon  in  case  the 
note  is  not  paid  at  maturity,  without  notice  of  non-payment 
having  been  given  to  him  by  the  holder  at  the  maturity  of  the 
note,  or  within  a  reasonable  time  thereafter;  or  in  case  notice 
is  not  given,  and  no  proceedings  taken  to  collect  the  note  from 
the  maker,  and  the  maker  of  the  note,  at  the  maturity  thereof, 
was  solvent,  and  subsequently,  and  before  suit  is  brought  on 
the  guaranty,  becomes  insolvent,  can  such  guarantor,  when  such 
action  is  brought  against  him,  set  up  such  insolvency  as  a  de- 
fense? The  defense  being  based  on  plaintiff's  laches  in  not  giv- 
ing notice  to  the  defendant  of  the  non-payment  of  this  note  at 
maturity,  and  the  consequent  damage  to  defendant  thereby,  the 
correctness  of  the  court's  ruling  depends  on  whether  or  not 
there  rested  on  the  plaintiff  the  duty  to  give  such  notice  under 
any  circumstances. 

The  defendant  claims  that  his  liability  existed  only  on  the 
happening  of  a  contingency  and  the  performance  of  a  condi- 
tion; that  whether  or  not  that  contingency  happened,  or  condi- 
tion was  performed,  was  matter  peculiarly  within  the  knowledge 
of  the  plaintiff,  and  not  within  his  own;  and  that  if  plaintiff 
intended  to  assert  the  performance  of  the  condition,  or  the  hap- 
pening of  the  contingency,  whereby  alone  defendant  was  to 
become  liable,  it  was  her  duty  to  do  so  within  a  reasonable  time, 
and,  in  any  event,  before  the  maker  of  the  note  became  insolvent 
and  a  fugitive ;  that  her  neglect  to  do  so,  and  the  damage  to  him 
thereby,  has  released  him  from  the  obligation  of  his  conditional 
contract. 

The  position,  however,  of  a  guarantor  of  payment,  as  between 
him  and  the  maker  of  the  note,  is  that  of  a  surety.  It  is  a 
common-law  contract,  and  not  a  contract  known  to  the  law- 
merchant.  It  is  an  absolute  promise  to  pay  if  the  maker  does 
not  pay,  and  the  right  of  action  accrues  against  the  guarantor 
at  the  moment  the  maker  fails  to  pay.  The  guarantor  would 
not  be  discharged  by  any  neglect  or  even  refusal  on  the  part 
of  the  holder  of  the  note  to  prosecute  the  principal,  even  if  the 


ROBERTS  v.  HAWKINS.  375 

maker  was  solvent  at  the  maturity  of  the  note,  and  subsequently 
became  insolvent;  and  the  fact  that  no  notice  of  non-payment 
was  given  the  guarantor  at  the  maturity  of  the  note,  or  at  any 
time  before  bringing  suit,  would  not  affect  the  rights  of  the 
holder  of  the  note  against  the  guarantor.  The  guarantor's 
remedy  was  to  have  paid  the  note,  and  taken  it  up,  and  himself 
proceeded  against  the  maker. 

A  guaranty  is  held  to  be  a  contract  by  which  one  person  is 
bound  to  another  for  the  due  fulfillment  of  a  promise  or  engage- 
ment of  a  third  party.  2  Pars.  Cont.  3. 

The  contract  or  undertaking  of  a  surety  is  a  contract  by  one 
person  to  be  answerable  for  the  payment  of  some  debt,  or  the 
performance  of  some  act  or  duty,  in  case  of  the  failure  of 
another  person  who  is  himself  primarily  responsible  for  the 
payment  of  such  debt  or  the  performance  of  the  act  or  duty. 
3  Add.  Cont.  Sec.  1111 ;  3  Kent  Com.  121 ;  Wright  v.  Simpson, 
6  Ves.  734. 

In  the  ease  of  Pain  v.  Packard,  13  Johns.  174  (decided  in 
1816),  it  was  held  that  if  the  surety  call  upon  the  creditor  to 
collect  the  debt  of  the  principal,  and  he  disregard  that  request, 
and  thereby  the  surety  is  injured,  as  by  the  subsequent  insol- 
vency of  the  principal,  the  surety  was  thereby  discharged.  A 
directly  contrary  decision  was  given  by  Chancellor  Kent,  upon 
argument  and  full  consideration,  the  following  year.  King  v. 
Baldwin,  2  Johns.  Ch.  554.  Two  years  later  the  last  decision 
was  reversed  by  the  court  of  errors  by  casting  vote  of  the  pre- 
siding officer^  a  layman,  and  against  the  opinon  of  the  majority 
of  the  judges.  King  v.  Baldwin,  17  Johns.  384. 

In  the  case  of  Brown  v.  Curtiss,  2  N.  Y.  226  (decided  in 
1849),  the  action  was  brought  against  the  guarantor  of  a  promis- 
sory note.  On  the  trial  it  was  admitted  that  there  had  been 
no  demand  of  the  maker,  nor  any  notice  of  non-payment,  and 
the  note  was  dated  April  2,  1838,  and  payable  six  months  after 
the  date.  The  suit  was  brought  against  the  guarantor  in  Sep- 
tember, 1845.  The  defendant  offered  to  prove  that,  from  the 
time  the  note  fell  due  until  the  latter  part  of  1843,  the  maker 
was  able  to  pay  the  note ;  that  he  then  failed,  and  was  insolvent 
at  the  time  of  the  commencement  of  the  suit,  and  still  remained 
so.  This  evidence  was  objected  to,  and  excluded,  and  verdict 
directed  for  plaintiff.  The  court  (at  p.  227)  says: 

"The  undertaking  of  the  defendant  was  not  conditional,  like 


376  GUARANTY  OF  PAYMENT  OR  COLLECTION. 

that  of  an  indorser;  nor  was  it  upon  any  condition  whatever. 
It  was  an  absolute  agreement  that  the  note  should  be  paid  by 
the  maker  at  maturity.  When  the  maker  failed  to  pay,  the  de- 
fendant's contract  was  broken,  and  the  plaintiff  had  a  complete 
right  of  action  against  him.  It  was  no  part  of  the  agreement 
that  the  plaintiff  should  give  notice  of  the  non-payment,  nor 
that  he  should  sue  the  maker,  or  use  any  diligence  to  get  the 
money  from  him.  .  .  .  Proof  that  when  the  note  became 
due,  and  for  several  years  afterwards,  the  maker  was  abund- 
antly able  to  pay,  and  that  he  had  since  become  insolvent,  would 
be  no  answer  to  this  action.  The  defendant  was  under 
an  absolute  agreement  to  see  that  the  maker  paid  the  note  at 
maturity.  .  .  . 

"If  the  defendant  wished  to  have  him  sued,  he  should  have 
taken  up  the  note,  and  brought  the  suit  himself.  The  plaintiff 
was  under  no  obligation  to  institute  legal  proceedings." 

The  weight  of  authority,  both  in  this  country  and  in  England, 
sustains  this  doctrine,  and  we  think  with  much  good  reason. 
Bellows  v.  Lowell,  5  Pick.  310 ;  Davis  v.  Higgins,  3  N.  H.  231 ; 
Page  v.  "Webster,  15  Me.  249 ;  Dennis  v.  Rider,  2  McLean,  451. 

In  Train  v.  Jones,  11  Vt.  446,  it  is  said: 

"An  absolute  guaranty  that  the  debt  of  a  third  person  shall 
be  paid,  or  that  he  shall  pay  it,  imposes  the  same  obligation 
upon  the  guarantor.  In  either  case,  it  is  an  absolute  guaranty 
of  the  sum  stipulated,  and  the  creditor  is  not  bound  to  use 
diligence,  or  to  give  reasonable  notice  of  non-payment. ' '  Noyes 
v.  Nichols,  28  Vt.  174. 

In  Bloom  v.  Warder,  13  Neb.  478  (14  N.  W.  Eep.  396),  which 
was  an  action  against  the  guarantors  of  payment  of  a  promis- 
sory note,  the  court  says: 

"This  is  an  absolute  contract,  for  a  lawful  consideration,  that 
the  money  expressed  in  the  note  shall  be  paid  at  maturity 
thereof  at  all  events,  and  depends  in  no  degree  upon  a  demand 
of  payment  of  the  maker  of  the  note,  or  any  diligence  on  the 
part  of  the  holder." 

Mere  passiveness  on  the  part  of  the  holder  will  not  release  the 
guarantor,  even  if  the  maker  of  the  note  was  solvent  at  its 
maturity,  and  thereafter  became  insolvent.  Breed  v.  Hillhouse, 
7  Conn.  528;  Bank  v.  Hopson,  53  Conn.  454  (5  Atl.  Rep.  601)  ? 
Foster  v.  Tolleson,  13  Rich.  Law,  33;  Machine  Co.  v.  Jones,  61 
Mo.  409 ;  Barker  v.  Scudder,  56  Id.  276 ;  Norton  v.  Eastman,  4 


McMURRAY  v.  NOTES.  377 

Greenl.  521 ;  Brown  v.  Curtiss,  2  N.  Y.  225 ;  Allen  v.  Rightmere, 
20  Johns.  365;  Bank  v.  Sinclair,  60  N.  H.  100;  Gage  v.  Bank, 
79  111.  62;  Hungerford  v.  O'Brien,  37  Minn.  306  (34  N.  W. 
Hep.  161). 

It  follows  that,  this  being  an  absolute  undertaking  on  the 
part  of  the  defendant  as  guarantor  to  pay  the  amount  of  this 
note  at  maturity  in  the  event  of  the  default  of  payment  by  the 
principal,  the  guarantor  could  not  demand  any  diligence  on  the 
part  of  the  holder  of  the  note  to  collect  the  same  from  the 
principal.  It  was  his  duty  to  perform  his  contract — that  is,  to 
pay  the  note  upon  default  of  the  principal;  and  it  is  no  answer 
for  him  to  say  that  the  principal  was  solvent  at  the  maturity 
of  the  note,  and  that  the  same  could  then  have  been  collected 
of  him  by  the  holder,  and  that  he  has  since  become  insolvent. 
If  he  wished  to  protect  himself  against  loss,  he  should  have  kept 
his  engagement  with  the  holder  of  the  note,  paid  it  upon  default 
of  the  principal,  taken  up  the  note,  and  himself  prosecuted  the 
party  for  whose  faithful  performance  of  the  contract  he  became 
liable. 

The  court  properly  directed  the  verdict  for  the  plaintiff;  and 
the  judgment  of  the  court  below  must  be  affirmed,  with  costs. 

The  other  Justices  concurred. 


b.  A  guarantor  of  collection  is  liable  only  when  the  creditor 
cannot  with  due  diligence  collect  of  the  principal  debtor. 

McMURRAY  v.  NOYES.     1878. 
72  N.  Y.  523,  28  Am.  Eep.  180. 

RAPPALLO,  J.  The  guaranty  on  which  this  action  is  brought 
is  contained  in  an  assignment  of  a  bond  and  mortgage,  and  is 
in  the  following  form: 

"I  hereby  covenant  .  .  .  that  in  case  of  foreclosure  and 
sale  of  the  mortgaged  premises  described  in  said  mortgage,  if 
the  proceeds  of  such  sale  shall  be  insufficient  to  satisfy  the  same, 
with  the  cost  of  foreclosure,  I  will  pay  the  amount  of  such 
deficiency  to  the  said  party  of  the  second  part,  or  its  assigns 
on  demand." 


378  GUARANTY  OF  PAYMENT  OR  COLLECTION. 

On  the  part  of  the  appellants,  it  is  contended  that  this  guar- 
anty is  subject  to  the  rules  -applicable  to  guaranties  of  collec- 
tion, and  thus  laches  in  foreclosing  the  mortgage,  after  default, 
is  a  defense.  The  respondents  insist  that  it  is  a  guaranty  of 
payment,  and  that  they  were  under  no  obligation  to  use  diligence 
in  endeavoring  to  collect  the  mortgage  debt  by  foreclosure. 

The  fundamental  distinction  between  a  guaranty  of  payment 
and  one  of  _  collection  is,  that  in  the  first  case  the  guarantor 
undertakes  unconditionally  that  the  debtor  will  pay,  and  the 
creditor  may,  upon  default,  proceed  directly  against  the  guar- 
antor, without  taking  any  steps  to  collect  of  the  principal  debtor, 
and  the  omission  or  neglect  to  proceed  against  him  is  not  (except 
under  special  circumstances)  any  defense  to  the  guarantor; 
while  in  the  second  case  the  undertaking  is  that  if  the  demand 
cannot  be  collected  by  legal  proceedings  the  guarantor  will  pay, 
and  consequently  legal  proceedings  against  the  principal  debtor, 
and  a  failure  to  collect  of  him  by  those  means  are  conditions 
precedent  to  the  liability  of  the  guarantor ;  and  to  these  the  law, 
as  established  by  numerous  decisions,  attaches  the  further  con- 
dition that  due  diligence  be  exercised  by  the  creditor  in  enforc- 
ing his  legal  remedies  against  the  debtor. 

These  rules  are  well  settled  and  are  not  controverted,  and 
the  only  question  is  to  which  class  of  guaranties  the  one  now 
before  us  belongs. 

It  is  apparent  upon  the  face  of  the  instrument  that  the  under- 
taking of  the  defendant  was  not  an  unconditional  one  that  the 
mortgagor  should  pay,  or  that  the  guarantor  would  pay  on 
default  of  the  mortgagor,  but  only  that  the  guarantor  would 
pay,  in  case  of  a  deficiency  arising  on  a  foreclosure  and  sale. 
The  foreclosure  and  sale  were  consequently  conditions  precedent, 
and  the  general  principle  is,  that  wherever  a  condition  precedent 
is  to  be  performed  for  the  purpose  of  establishing  the  liability 
of  a  surety  or  guarantor,  such  condition  must  be  performed  in 
good  faith  and  with  due  diligence.  It  is  upon  this  principle 
that,  in  case  of  a  guaranty  of  collection,  diligence  is  required 
of  the  creditor. 

I  am  unable  to  see  why  this  principle  is  not  applicable  to  the 
guaranty  now  in  controversy.  The  respondents  claim  that  it  is 
an  undertaking  to  pay  any  deficiency  which  may  arise,  and  is, 
therefore,  a  guaranty  of  payment  of  the  mortgage  debt  to  that 
extent,  and  to  be  governed  by  the  same  rules  as  if  it  had  been 


McMURRAY  v.  NOTES.   '  379 

a  guaranty  of  payment  of  the  whole  mortgage.  But  the  fallacy 
of  this  reasoning  is  that  it  is  not  an  unconditional  guaranty 
that  the  mortgagor  will  pay  the  mortgage  debt,  or  any  part  of 
it,  but  only  that  after  the  remedy  against  the  land  has  been 
exhausted,  and  the  deficiency  ascertained  by  foreclosure  and  sale, 
the  guarantor  will  pay  such  deficiency.  The  only  difference  be- 
tween this  and  an  ordinary  guaranty  of  collection  is,  that  in  the 
latter  case  the  undertaking  is  that  after  it  has  been  ascertained 
by  all  such  legal  proceedings  as  the  case  admits  of,  that  the 
demand  cannot  be  collected,  the  guarantor  will  pay ;  while  in  the 
present  case  the  only  proceedings  which  the  creditor  is  bound 
to  adopt  are  a  foreclosure  of  the  mortgage  and  sale  of  the  mort- 
gaged lands.  To  that  extent  the  condition  precedent  exists 
alike  in  both  cases,  and  the  duty  of  exercising  due  diligence 
attaches,  there  being  nothing  in  the  instrument  qualifying  or 
dispensing  with  it. 

The  case  of  Goldsmith  v.  Brown  (35  Barb.  484)  is  relied  upon 
by  the  respondents  as  sustaining  their  position.  In  that  case 
the  covenant  was,  as  construed  by  the  court,  to  pay  the 
deficiency  upon  the  mortgage  debt  whenever  the  remedy  against 
the  lands  mortgaged  should  have  been  exhausted  and  the  de- 
ficiency ascertained.  The  decision  in  that  case  can  only  be 
sustained  by  construing  the  covenant  as  waiving  diligence  in 
foreclosing  and  binding  the  covenanter  to  pay  the  deficiency 
without  regard  to  the  time  of  the  foreclosure.  Nothing  in  the 
covenant  now  under  examination  has  any  relation  to  the  time 
of  the  foreclosure,  or  can  be  construed  as  waiving  diligence 
required  by  the  general  rules  of  law  in  performing  the  condition. 

The  delay  in  foreclosing  in  the  present  case  was  fourteen 
months  after  the  mortgage  debt  became  due.  During  upward 
of  ten  months  of  this  time  the  property  was  a  sufficient  security, 
but  afterward  the  buildings  thereon  were  destroyed  by  fire,  and 
the  value  was  reduced  below  the  amount  of  the  mortgage  debt. 
It  cannot  be  questioned  that  this  delay  was  sufficient  to  constitute 
laches.  In  Craig  v.  Parkis,  40  N.  Y.  181,  a  delay  of  six  months 
in  foreclosing  a  bond  and  mortgage  was  held  to  be  laches  which 
discharged  a  guaranty  of  its  collection. 

The  judgment  should  be  reversed,  and  a  new  trial  ordered, 
with  costs  to  abide  the  event.  All  concur. 

Judgment  reversed. 


380       GUARANTY  OF  PAYMENT  OR  COLLECTION. 

CLAEK  v.  KELLOGG.     1893. 
96  Mich.  171;  55  N.  W.  Eep.  676. 

MONTGOMERY,  J.  The  plaintiffs  sued  the  defendant,  counting 
upon  a  breach  of  an  agreement  given  on  the  occasion,  and  in 
consideration,  of  the  purchase  by  the  plaintiffs  from  the  defend- 
ant of  a  stock  of  goods  and  a  quantity  of  notes  and  accounts. 
That  portion  of  the  agreement  material  to  be  considered  in 
determining  the  questions  involved  read  as  follows: 

"The  said  party  of  the  first  part  .  .  .  does  covenant  and 
agree  .  .  .  that  the  annexed  invoice  is  a  true  statement  of 
the  amount  and  value  of  stock,  merchandise,  and  property,  and 
also  guarantee,  represent,  and  warrant  that  there  is  in  said 
stock  goods  to  the  value  of  $14,709.68;  also  that  the  amount 
of  $29,702.54  net  shall  be  realized,  without  charging  for  the  per- 
sonal services  of  the  parties  of  the  second  part,  nor  other  charges 
of  second  parties,  except  incurred  in  suits,  by  the  parties  of 
the  second  part,  upon  the  accounts  and  notes  herein  conveyed. 
The  parties  of  the  second  part  shall  use  due  diligence  in  their 
collection. ' ' 

The  declaration  counted  upon  this  agreement,  and  set  out  no 
subsequent  modification  or  waiver  of  its  terms.  On  the  trial  the 
plaintiffs  sought  to  recover  by  showing  that  they  had  dealt  with 
the  accounts  as  men  of  ordinary  business  judgment  would,  and 
also  sought  to  show  that  the  defendant  had,  as  to  a  large  portion 
of  the  accounts,  directed  the  plaintiffs  as  to  what  he  would 
require  as  evidence  of  due  diligence,  and  that  the  plaintiffs  had 
complied  with  the  demands  of  the  defendant  in  this  regard. 

1.  The  circuit  judge  construed  the  original  contract  as 
amounting  to  a  guaranty  of  collection,  and  held  that  no  show- 
ing of  diligence  was  sufficient  which  did  not  include  proof  that 
the  accounts  had  each  been  put  in  judgment,  and  execution  had 
been  taken  out,  and  returned  unsatisfied.  This  ruling  was  un- 
questionably right,  if  the  proper  construction  was  placed  on  the 
contract.  Bosnian  v.  Akeley,  39  Mich.  710;  Schermerhorn  v. 
Conner,  41  Id.  374. 

It  is  contended,  however,  that  the  contract  in  question  should 
not  be  construed  as  a  guaranty  of  collection  of  each  individual 
account,  requiring  resort  to  legal  process  in  the  collection  of 
each,  but  amounted  to  a  warranty  and  representation  that  there 


CLARK  v.   KELLOGG.  381 

should  be  realized  $29,702.54  from  the  total  of  the  accounts; 
and  that  the  fact  that  the  amount  guaranteed  to  be  realized  was 
much  less  than  the  face  of  the  accounts  negatives  the  idea  that 
resort  should  be  had  to  suit  upon  each  account.  The  infirmity 
of  this  construction  is  that  it  ignores  the  subsequent  language, 
"The  parties  of  the  second  part  shall  use  due  diligence  in  their 
collection,"  or  accords  to  this  language  a  meaning  at  variance 
with  the  settled  significance  of  the  terms  employed.  What  con- 
stitutes due  diligence  is  settled  by  the  cases  of  Bosman  v.  Akeley 
and  Schermerhorn  v.  Conner,  supra. 

In  the  case  of  Ralph  v.  Eldredge,  58  Hun.  203,  a  similar  ques- 
tion was  presented.  Plaintiff  and  defendant  were  co-partners. 
Defendant  conveyed  his  interest  to  the  plaintiff  in  the  notes, 
accounts  and  demands  owing  to  the  firm.  The  defendant  at  the 
same  time  executed  to  the  plaintiff  a  bond  with  the  condition 
that  defendant  should  pay  to  the  plaintiff  one-half  of  the  amount 
of  the  notes,  accounts,  and  claims  of  the  late  firm  assigned  by 
defendant  to  plaintiff  that  should  prove  to  be  uncollectible,  if 
any  such  there  should  be.  The  court  say : 

"It  seems  to  be  settled  in  this  state  that  a  guaranty  of  collec- 
tion is  an  undertaking  to  pay  the  sum  of  money  guaranteed, 
provided  the  principal  debtor  is  prosecuted  to  judgment  and 
execution  with  due  diligence,  and  the  same  cannot  be  collected 
of  him.  .  .  .  The  plaintiff  urges  that  the  bond  does  not 
guarantee  the  collection  of  these  claims,  but  is  only  a  contract 
to  pay  plaintiff  one-half  of  the  amount  of  those  which  should 
turn  out  bad.  But  the  bond  uses  the  word  'collectible,'  and  the 
question  must  be,  what  is  the  legal  meaning  of  that  word? 
That  word  has  a  definite  meaning  as  decided  in  the  cases  above 
cited ;  and  that  meaning  should  be  here  enforced. ' ' 

The  legal  signification  of  the  term  "due  diligence,"  as  applied 
to  a  guaranteed  note  or  account,  is  well  understood,  and  the 
parties  must  be  assumed  to  have  contracted  with  reference  to 
that  meaning. 

2.  The  court  rightly  held  that  the  alleged  subsequent  waiver 
could  not  be  shown  under  the  pleadings  in  this  cause.  The  con- 
tract itself  having  fixed  upon  the  plaintiffs  a  specific  duty,  the 
averment  in  the  declaration  that  the  plaintiffs  did  use  due  dili- 
gence amounted,  in  effect,  to  an  averment  that  they  had  pursued 
the  course  which  the  law  imposes  upon  them  in  order  to  charge 
the  guarantor.  If  they  relied  on  any  excuse  for  failing  to  use 


382       GUARANTY  OF  PAYMENT  OR  COLLECTION. 

due  diligence,  this  should  have  been  counted  upon  in  the  declara- 
tion.   Aldrich  v.  Chubb,  35  Mich.  350. 

Judgment  affirmed,  with  costs. 

The  other  Justices  concurred. 


KEARNES  v.  MONTGOMERY.    1870. 
4  W.  Va.  29. 

The  facts  are  stated  in  the  opinion  of  MAXWELL,  J. 

MAXWELL,  J.  This  was  an  action  of  assumpsit,  to  recover 
from  the  defendant  the  sum  of  2,000  dollars,  with  interest.  The 
facts  certified  show  that  on  the  28th  day  of  January,  1860,  the 
plaintiff  held  the  bond  of  the  defendant  and  one  J.  N.  Mont- 
gomery for  2,000  dollars;  that  the  defendant,  on  the  day  and 
year  aforesaid,  proposed  to  exchange  with  the  plaintiff  for  the 
said  bond,  a  bond  of  2,000  dollars  executed  by  Thomas  Creigh 
and  L.  S.  Creigh  to  the  plaintiff;  that  the  plaintiff  refused  to 
accept  the  said  last  mentioned  bond  unless  the  defendant  would 
indorse  the  same,  inasmuch  as  it  was  payable  to  the  plaintiff 
and  not  to  the  defendant;  whereupon  the  said  defendant  wrote 
his  name  upon  the  back  of  the  said  bond,  which  was  then  ac- 
cepted by  the  plaintiff,  who,  in  exchange  therefor,  delivered 
to  the  defendant  the  said  bond  of  the  defendant  and  J.  N.  Mont- 
gomery; that  afterwards,  and  after  the  institution  of  the  suit, 
but  before  the  trial,  the  plaintiff  wrote  above  the  blank  indorse- 
ment of  the  defendant,  a  promise  binding  the  defendant  as 
surety  of  the  said  Thomas  Creigh  and  L.  S.  Creigh;  that  the 
bond  with  the  indorsement  thereon  is  as  follows : 

w  "On  or  before  the  first  of  March,  1861,  with  interest  from  the 

first  of  March,  1860,  we  or  either  of  us  bind  ourselves,  our  heirs, 
etc.,  to  pay  Alexander  Kearnes  the  just  and  full  sum  of  two 
thousand  dollars  for  value  received. 

' '  Witness  our  hands  and  seals  this  28th  day  of  January,  1860. 

"THOMAS  CREIGH,  (Seal.) 
"LEWIS  S.   CREIGH,   (Seal.) 

f    For  value  received,  I  hereby  become  the  surety  of  Thomas 
1  Creigh  and  Lewis  S.  Creigh  as  obligors  in  the  within  bond. 

H.  MONTGOMERY." 


KEARNES  v.  MONTGOMERY.  383 

That  the  debt  against  the  Creighs  could  have  been  made  by 
suit  in  the  year  1861,  and  after  the  close  of  the  war  in  1865,  and 
that  the  said  Creighs  have  been  insolvent  since  1866,  and  that 
since  that  time  the  debt  could  not  have  been  made  off  of  them 
by  suit.  Upon  these  facts  judgment  was  rendered  for  the  de- 
fendant. The  plaintiff  in  error  insists  that  the  judgment  is 
erroneous,  because  upon  the  facts  proved,  the  defendant  was 
a  surety  or  maker  of  the  bond  in  question  and  primarily  liable 
for  its  payment,  while  it  is  insisted  for  the  defendant  that  he 
was  a  guarantor  merely  and  only  liable  for  the  payment  of  the 
bond  in  case  the  money  could  not  be  made  off  of  the  makers  of 
the  paper  after  it  fell  due,  by  the  use  of  due  diligence  which,  he 
insists,  was  not  used  before  the  makers  became  insolvent.  Whether 
the  defendant  is  guarantor  or  maker  depends  on  the  under- 
standing of  the  parties.  If  the  payee  or  assignee  of  paper,  not 
negotiable,  indorse  his  name  in  blank  on  the  back  of  it,  he  is 
prima  facie  assignor,  but  if  a  stranger  indorse  his  name  in  blank 
on  the  back  of  paper,  not  negotiable,  he  is  prima  facie  guarantor ; 
but  this  presumption  may  be  rebutted  by  showing  the  original 
understanding  of  the  parties,  by  showing  an  express  agreement 
otherwise,  or  by  showing  circumstances  from  which  one  may 
be  inferred. 

The  contract  of  a  guarantor  is  collateral  and  secondary.  It 
(differs  in  that  respect  generally  from  the  contract  of  a  surety 
which  is  direct;  and  in  general  the  guarantor  contracts  to  pay 
if,  by  the  use  of  due  diligence,  the  debt  cannot  be  made  out  of 
the  principal  debtor,  while  the  surety  undertakes  directly  for 
the  payment  and  so  is  responsible  at  once  if  the  principal  debtor 
makes  default.  As  the  proper  diligence  was  not  used  against 
the  Creighs,  if  the  defendant  is  guarantor  merely  he  is  not 
liable  for  the  payment  of  the  debt;  while  if  he  is  to  be  treated 
as  surety,  he  is  liable.  It  becomes,  therefore,  necessary  to  deter- 
mine whether  he  is  a  technical  guarantor  merely  or  a  surety. 

The  plaintiff,  after  suit  brought,  wrote  over  the  name  of  the 
defendant,  "For  value  received,  I  hereby  become  the  surety  of 
Thomas  Creigh  and  Lewis  S.  Creigh  as  obligor  in  the  within 
bond."  It  is  upon  this  contract,  so  written  by  the  plaintiff, 
that  he  claims  his  right  to  recover  from  the  defendant.  The 
plaintiff  might  write  anything  over  the  name  of  the  defendant, 
consistent  with  the  contract  of  the  defendant,  so  as  to  carry  it 
out.  He  could  not  write  the  words  which  he  did  write,  unless 


384      GUARANTY  OF  PAYMENT  OR  COLLECTIO  \ 

upon  special  contract  between  the  parties,  disclosed  by  the  evi- 
dence and  surrounding  circumstances.  The  evidence,  instead  of 
sustaining  and  authorizing  this  special  contract  as  written  by 
the  plaintiff,  does  not  even  tend  to  show  any  such  understanding, 
but  on  the  contrary  shows,  so  far  as  can  be  inferred  from  it,  that 
the  defendant  was  to  assume  the  same  situation  as  to  liability 
that  he  would  have  occupied  if  the  paper  had  been  executed  to 
him  as  payee  and  transferred  by  him  to  the  plaintiff.  As  the 
facts  proved  wholly  fail  to  show  a  contract  on  the  part  of  the 
defendant  to  be  liable  as  maker  or  surety,  it  follows  that  he  is 
liable  only  as  guarantor. 

The  facts  proved  show  affirmatively  that,  by  the  use  of  due 
diligence  against  the  Creighs,  the  plaintiff  might  have  made 
the  money. 

The  judgment  complained  of  will,  therefore,  have  to  be  af- 
firmed with  damages  and  costs. 


HUNGERFORD  v.  O'BRIEN.    1887. 
37  Minn.  306;  34  N.  W.  161. 

The  plaintiff  brought  this  action  in  the  district  court  of  Otter 
Tail  county  upon  a  promissory  note  made  by  the  defendant, 
Charles  J.  Sawbridge,  the  payment  of  which  was  guaranteed  by 
the  defendant  0  'Brien.  The  action  was  tried  before-  BAXTER, 
J.,  and  a  jury,  and  a  verdict  directed  for  plaintiff.  Defendant 
0  'Brien  appeals  from  an  order  refusing  a  new  trial. 

DICKINSON,  J.  The  defendant  Sawbridge  made  his  negotiable 
promissory  note,  which  was  indorsed  to  one  Gage,  who  indorsed 
it  in  blank  to  the  defendant  O'Brien,  and  he,  before  maturity, 
transferred  it  for  value  to  the  plaintiff,  indorsing  upon  the  note 
and  signing  this  guaranty :  ' '  For  value,  I  hereby  guaranty  the 
payment  of  the  within  note  to  Cassie  Hungerford  or  bearer." 
The  note  was  not  paid.  Nothing  was  done  by  the  plaintiff  at 
the  maturity  of  the  note  to  fix  the  liability  of  the  indorser  Gage. 
The  defendant  0  'Brien  had  no  notice  of  the  non-payment  of  tho 
note  until  more  than  a  year  after  its  maturity.  Upon  the  trial 
of  the  issue  raised  by  the  answer  of  the  defendant  0  'Brien,  evi- 
dence was  presented  tending  to  show  that  the  maker  of  the 


HUNGERFORD  v.  O'BRIEN.  385 

note  was  solvent  at  the  time  of  its  maturity,  but  has  since  become 
insolvent;  and  that  the  indorser,  Gage,  was  also  solvent.  The 
court  directed  a  verdict  for  the  plaintiff. 

The  nature  of  the  obligation  of  the  guarantor  is  affected  by 
the  character  of  the  principal  contract  to  which  the  guaranty 
relates.  The  note  expressed  the  absolute  obligation  of  the  maker 
to  pay  the  sum  named  at  the  specified  date  of  maturity  or  before. 
The  guaranty  of  ''the  payment  of  the  within  note"  imported  an 
undertaking,  without  condition,  that,  in  the  event  of  the  note 
not  being  paid  according  to  its  terms, — that  is,  at  maturity, — 
the  guarantor  should  be  responsible.  The  non-payment  of  the 
note  at  maturity  made  absolute  the  liability  of  the  guarantor, 
and  an  action  might  at  once  have  been  maintained  against  him 
without  notice  or  demand.  Such  was  the  effect  of  the  unquali- 
fied guaranty  of  the  payment  of  an  obligation  which  was  in  itself 
absolute  and  perfect  and  certain  as  respects  the  sum  to  be  paid, 
and  the  time  when  payment  should  be  made, — all  of  which  was 
known  to  the  guarantor,  and  appears  upon  the  face  of  the  con- 
tract. The  liability  of  the  guarantor  thus  becoming  absolute  by 
the  non-payment  of  the  note,  the  neglect  of  the  holder  to  pursue 
such  remedies  as  he  might  have  against  the  maker — (the  guaran- 
tor not  having  required  him  to  act)  would  not  discharge  the 
already  fixed  and  absolute  obligation  of  the  guarantor,  nor 
would  neglect  to  notify  the  guarantor  of  the  non-payment  have 
such  effect.  Brown  v.  Curtiss,  2  N.  Y.  225 ;  Allen  v.  Rightmere, 
20  John.  365  (11  Am.  Dec.  288) ;  Newcomb  v.  Hale,  90  N.  Y. 
326;  Read  v.  Cutts,  7  Greenl.  186,  (22  Am.  Dec.  184) ;  Breed  v. 
Hillhouse,  7  Conn.  523;  Campbell  v.  Baker,  46  Pa.  St.  243; 
Roberts  v.  Riddle,  79  Pa.  St.  468;  Bank  v.  Sinclair,  60  N.  H. 
100;  Ileaton  v.  Hulbert,  3  Scam.  489;  Dickerson  v.  Derrickson, 
39  111.  574;  Penny  v.  Crane  Mfg.  Co.,  80  111.  244;  Clay  v.  Edger- 
ton,  19  Ohio  St.  549;  Wright  v.  Dyer,  48  Mo.  525.  See,  also 
Vinal  v.  Richardson,  13  Allen  521,  modifying  former  decisions 
of  the  same  court. 

It  follows  that  the  fact  that  the  maker  had  become  insolvent 
since  maturity,  or  that  a  mortgage  security  had  become  impaired 
by  depreciation  in  the  value  of  the  property,  was  no  defence; 
nor  was  it  a  defence  that  the  guarantor  was  not  notified  of  the 
non-payment  of  the  note.  We  are  aware  that  the  position  here 
taken  is  opposed  by  some  decisions.  No  valid  agreement  was 
shown  between  the  maker  and  the  plaintiff  extending  the  time 

25 


386  GUARANTY  OF  PAYMENT  OR  COLLECTION. 

of  payment.  From  the  position  above  taken,  it  logically  follows 
that  the  neglect  of  the  guarantee  to  take  the  steps  necessary  to 
fix  the  liability  of  the  indorser,  Gage,  did  not  discharge  the 
guarantor.  The  latter,  by  his  unqualified  guaranty  of  the  pay- 
ment of  the  note,  took  it  upon  himself  to  see  that  the  note  was 
paid,  and  was  therefore  not  entitled  to  notice  of  its  non-payment. 
(Authorities  above  cited.)  For  the  same  reason,  the  plaintiff 
did  not  owe  to  the  guarantor  the  duty  of  taking  the  steps  neces- 
sary to  fix  the  contingent  liability  of  the  indorser  by  demand  and 
notice  of  dishonor.  Philbrooks  v.  McEwen,  29  Ind.  347;  Lang 
v.  Brevard,  3  Strob.  Eq.  (So.  Car.)  59;  Pickens  v.  Finney,  12 
Smedes  &  M.  468 ;  2  Lead.  Gas.  Eq.,  notes  to  Kees  v.  Berrington. 
No  such  obligation  is  involved  in  this  contract  of  guaranty. 
Even  in  the  case  of  an  ordinary  indorsement,  the  holder,  at  ma- 
turity, is  under  no  obligation  to  his  indorser  to  give  notice  of 
dishonor  to  prior  indorsers  or  parties.  The  last  indorser  be- 
comes liable  when  he  alone  is  notified,  and  he  in  turn  may  fix 
the  liability  of  prior  parties  by  giving  notice  to  them. 

Order  affirmed. 

JMJTCHELL,  J.  (dissenting).  I  am  unable  to  concur  in  the 
proposition  that  the  plaintiff  owed  no  duty  to  O'Brien  to  take 
steps,  at  the  maturity  of  the  note,  to  fix  the  liability  of  Gage,  the 
indorser.  It  does  not  seem  to  me  that  the  fact  that  O'Brien's 
guaranty  of  payment  was  unconditional  and  absolute  is  at  all 
decisive  of  the  question.  As  between  the  parties  to  this  action, 
O'Brien  occupied  the  position  of  surety,  who,  in  case  he  had  to 
pay  the  note,  would  have  recourse  against  Gage,  the  indorser, 
provided  steps  were  taken  to  fix  the  liability  of  the  latter.  The 
question,  therefore,  is  to  be  determined  by  the  equitable  prin- 
ciples which  govern  the  relative  rights  and  duties  of  creditor 
and  surety. 

It  is  a  well-settled  rule  of  equity  that  any  laches  by  the  cred- 
itor in  the  care  or  management  of  collateral  remedies  or  securi- 
ties, if  loss  ensues,  will  discharge  the  surety  pro  tanto.  Nelson 
v.  Munch,  28  Minn.  314,  322  (9  N.  W.  Eep.  863).  As  a  surety, 
on  payment  of  the  debt,  is  entitled  to  all  the  securities  of  the 
creditor,  if  through  the  negligence  of  the  creditor  who  has  them 
in  his  possession  and  under  his  control,  a  security,  to  the  benefit 
of  which  the  surety  is  entitled,  is  lost  or  not  properly  perfected, 
the  surety,  to  the  extent  of  such  security,  will  be  discharged. 
;Wulff  v.  Jay,  L.  B.  7  A.  B.  756.  And  we  can  see  no  difference 


HARTLEY  v.  SANDFORD.  387. 

dn  this  respect  whether  the  security  is  chattel  or  personal.  This 
is  not  a  ease  of  mere  passiveness  by  the  creditor  in  not  taking 
steps  to  enforce  collection  of  the  debt  at  maturity,  but  an  omis- 
sion to  take  steps  to  perfect  and  fix  the  liability  of  the  indorser, 
which  amounted  to  positive  negligence.  He  had  possession  and 
control  of  the  note  on  the  day  of  its  maturity,  and  consequently 
was  the  only  person  who  could  present  it  for  payment,  or  who 
would  know  whether  or  not  it  was  paid,  and  hence  was  the  only 
person  in  position  to  give  notice  to  the  indorser  in  case  of  its 
non-payment.  To  require  him  to  do  this,  would,  I  think,  be 
both  good  business  morals  and  good  law. 


CHAPTER  XII. 

STATUTE  OF  FRAUDS. 

a.  Contracts  of  suretyship  and  guaranty,  being  agreements  to 
answer  for  the  debt,  default  ofmiscarriage  of  another,  are 
within  the  Statute  of  Frauds. 

HARTLEY  v.  SANDFORD.     1901. 
66  N.  J.  L.  621;  55  L.  B.  A.  206;  50  Atl  Rep.  454. 

Error  to  the  supreme  court  to  review  a  judgment  in  favor  of 
plaintiff  in  an  action  brought  to  enforce  a  promise  to  indemnify 
plaintiff  for  payments  which  he  had  been  compelled  to  make  as 
a  surety  for  defendant's  son.  Reversed. 

The  facts  are  stated  in  the  opinion. 

DIXON,  J.,  delivered  the  opinion  of  the  court : 

The  material  facts  in  this  case,  as  disclosed  by  the  record,  are 
that  the  defendant's  son  was  indebted  to  M.,  who  desired  addi- 
tional security;  that  hereupon  the  defendant  applied  to  the 
plaintiff  to  become  surety  for  the  son,  and  promised  him  that,  if 
he  was  compelled  to  pay  the  debt,  he  (the  defendant)  would 
reimburse  him ;  that  accordingly  the  plaintiff  became  surety  for 
the  son,  and  subsequently  was  obliged  to  pay  the  debt.  This  suit 
was  brought  upon  the  promise,  which  was  oral  only.  It  appears 
that  at  the  trial  in  the  Passaic  circuit  the  jury  were  instructed 
to  find  for  the  plaintiff  if  they  were  satisfied  the  promise  had 
been  made;  but  the  question  as  to  the  legal  sufficiency  of  the 
promise  was  reserved  and  certified  to  the  supreme  court,  which 


388  STATUTE  OF  FRAUDS. 

afterwards  advised  the  circuit  that  the  promise  was  valid,  and 
thereupon  judgment  was  entered  on  the  verdict. 

In  this  court  error  has  been  assigned  on  the  charge  at  the 
circuit,  as  well  as  on  the  advisory  opinion  of  the  supreme  court ; 
but,  there  being  no  bill  of  exceptions  presenting  the  charge,  the 
assignment  of  error  respecting  it  is  futile,  and  must  be  disre- 
garded. The  assignment  upon  the  opinion  of  the  supreme  court 
is  legal,  and  presents  the  only  question  now  before  us,  which  is 
whether  the  plaintiff's  suit  can  be  maintained,  in  view  of  our 
statute,  "that  no  action  shall  be  brought  to  charge  the  defendant 
upon  any  special  promise  to  answer  for  the  debt,  default,  or 
miscarriage  of  another  person,  unless  the  agreement  upon  which 
such  action  shall  be  brought,  or  some  memorandum  or  note  there- 
of, shall  be  in  writing  and  signed  by  the  person  to  be  charged 
therewith  or  some  other  person  thereunto  by  him  or  her  lawfully 
authorized."  The  advice  of  the  supreme  court  was  based  upon 
its  opinion  that  under  the  adjudications  in  this  state  the  promise 
of  one  person  to  indemnify  another  for  becoming  surety  of  a 
third  is  not  within  the  statute.  The  cases  cited  in  that 
opinion  to  support  this  view  are  Apgar  v.  Hiler,  24  N.  J.  L.  812 ; 
Cortelyou  v.  Hoagland,  40  N.  J.  Eq.  1;  and  Warren  v.  Abbett 
(N.  J.  L.)  46  Atl.  575.  Of  these,  the  only  one  of  controlling 
authority  here  is  that  of  Apgar  v.  Hiler,  which  is  a  decision  of 
this  court.  That  decision  does  not  sustain  the  broad  proposi- 
tion for  which  it  was  cited.  This  court  there  held  merely  that, 
between  two  persons  who  had  signed  the  same  promissory  note 
as  sureties  for  another  signer,  the  oral  promise  of  one  surety 
to  indemnify  the  other  was  valid.  This  promise  was  deemed 
outside  of  the  statute,  because  by  signing  the  note  the  promisor 
had  himself  become  a  debtor,  and  so  his  promise  to  indemnify 
was  to  answer  for  his  own  debt.  In  Cortelyou  v.  Hoagland 
several  stockholders  and  directors  of  a  corporation  had  promised 
to  indemnify  another  stockholder  and  director  for  indorsing 
a  corporate  note,  and  Warren  v.  Abbett  was  of  similar  character. 
In  the  Cortelyou  Case  the  chancellor  rested  his  decision  on 
Apgar  v.  Hiler,  which,  as  above  stated,  was  essentially  different, 
and  on  Thompson  v.  Coleman,  4  N.  J.  L.  216,  which  was  a 
promise  to  indemnify  a  constable  for  selling  under  execution 
goods  claimed  by  an  outside  party, — a  case  where  the  promisee 
had  no  redress  except  on  the  promise,  and  therefore  clearly 
outside  of  the  statute.  If  the  decisions  in  Cortelyou  v.  Hoag- 


HARTLEY  v.  SANDFORD.  389 

land  and  "Warren  v.  Abbett  are  to  be  supported  on  prior  New 
Jersey  adjudications,  such  support  must  be  found  in  the  doc- 
trine that  where  the  consideration  of  a  promise  to  answer  for 
the  debt,  default,  or  miscarriage  of  another  is  a  substantial 
benefit  moving  to  the  promisor,  then  the  statute  does  not  apply. 
This  rule  was  recognized  in  Kutzmeyer  v.  Ennis,  27  N.  J.  L. 
271,  and  Cowenhoven  v.  HoweU,  36  N.  J.  L.  323.  To  support 
those  decisions  on  this  rule,  it  must  be  held  that  the  payment 
of  a  corporate  debt  is  substantially  beneficial  to  the  stockholders 
or  directors  of  the  corporation, — a  proposition  which  seems  to 
be  denied  in  other  tribunals.  Browne,  Stat.  Fr.  §164.  In  the 
promise  now  under  consideration  there  was  no  such  element, 
and  no  case  has  been  found  in  our  Keports  involving  the  pres- 
ent question.  We  should  therefore  decide  the  matter  on  princi- 
ple, or  as  nearly  so  as  related  adjudication  will  permit.  Looked 
at  as  res  nova,  it  seems  indisputable  that  the  defendant's  promise 
was  within  the  statute.  It  was  to  respond  to  the  plaintiff  in 
case  the  defendant's  son  should  make  default  in  the  obligation 
which  he  would  come  under  to  the  plaintiff  as  soon  as  the  plain- 
tiff was  to  be  surety,  or  to  reimburse  the  plaintiff  if  he  paid  it. 
In  this  statement  of  the  nature  of  the  promise  there  is,  I  think, 
every  element  which  seems  necessary  to  bring  a  case  within  the 
purview  of  the  statute.  The  parties,  in  giving  and  accepting 
the  promise,  contemplated  (1)  an  obligation  by  a  third  person 
to  the  promisee;  (2)  that  this  obligation  should  be  the  founda- 
tion of  the  promise,  i.  e.,  that  the  obligation  of  the  son  to  the 
promisee  should  attach  simultaneously  with  the  suretyship  of 
the  plaintiff,  and  thereupon  should  arise  the  obligation  of  the 
promisor  for  the  fulfilment  of  the  son's  obligation;  and  (3) 
that  the  obligation  of  the  promisor  should  be  collateral  to  that 
of  the  son,  i.  e.,  if  the  latter  should  perform  his  obligation,  the 
promisor  would  be  discharged,  while,  if  the  promisor  was  re- 
quired to  perform  his  obligation,  that  of  the  son  would  not  be 
discharged,  but  only  shifted  from  the  promisee  to  the  promisor. 
An  examination  of  the  cases  will  show  that  not  many  of  them 
are  in  conflict  with  this  view,  when  they  are  free  from  differ- 
entiating circumstances.  In  the  leading  case  of  Thomas  v. 
Cook,  8  Barn.  &  C.  728,  such  a  circumstance  appears  in  the 
fact  that  the  promisor  was  himself  a  signer  of  the  bond  against 
which  he  promised  to  indemnify  the  promisee,  and  thus  the 
promise  was,  in  a  reasonable  sense,  to  answer  for  that  which, 


1 


390  STATUTE  OF  FRAUDS. 

as  to  the  promisee,  was  the  promisor's  own  debt.  On  this  dif- 
ference may  be  explained  the  decisions  in  Jones  v.  Leteher,  13 
B.  Mon.  363;  Horn  v.  Bray,  51  Ind.  555,  19  Am.  Rep.  742; 
Barry  v.  Eansom,  12  N.  Y.  462;  Sanders  v.  Gillespie,  59  N.  Y. 
250;  Ferrell  v.  Maxwell,  28  Ohio  St.  383,  22  Am.  Rep.  393; 
and  others, — resting  on  the  rule  applied  in  Apgar  v.  Hiler,  24 
N.  J.  L.  812.  The  remark  of  BAYLEY,  J.,  in  Thomas  v.  Cook, 
that  a  promise  to  indemnify  was  not  within  either  the  words 
or  the  policy  of  the  statute,  has  caused  much  of  the  confusion 
existing  on  this  subject,  but  it  is  more  than  counterbalanced  by 
the  observations  of  Lord  Denman  in  Green  v.  Cresswell,  10  Ad. 
&  El.  453,  and  Pollock,  C.  B.,  in  Cripps  v.  Hartnoll,  4  Best  & 
\^  S.  414,  to  the  effect  that  a  promise  to  indemnify  may  be  also 
an  undertaking  to  answer  for  the  debt  or  default  of  another, 
and  that  when  it  is  it  comes  within  the  operation  of  the  statute. 
Another  circumstance  taking  cases  out  of  the  simple  class  with 
which  we  are  now  concerned  is  that  mentioned  in  Kutzmeyer 
y.  Ennis,  27  N.  J.  L.  371,  376,  viz.,  the  existence  of  a  new  con- 
sideration beneficial  to  the  promisor,  or,  as  it  is  sometimes  ex- 
pressed, moving  to  the  promisor.  Such  cases  are  Smith  v. 
Sayward,  5  Me.  504;  Lucas  v.  Chamberlain,  8  B.  Mon.  276; 
Mills  v.  Brown,  11  Iowa  314;  Reed  v.  Holcomb,  31  Conn.  360; 
Smith  v.  Delaney,  64  Conn.  264,  29  Atl.  496;  Potter  v.  Brown, 
35  Mich.  274;  Comstock  v.  Norton,  36  Mich.  277;  Marrison  v. 
Sawtel,  10  Johns.  242,  6  Am.  Dec.  337;  Sanders  v.  Gillespie, 
59  N.  Y.  250,  Tighe  v.  Morrison,  116  N.  Y.  263,  5  L.  R.  A.  617, 
22  N.  E.  164.  Cases  of  still  another  character  are  sometimes 
cited  in  support  of  the  statement  that  contracts  to  indemnify 
are  outside  of  the  statute,  such  as  Cripps  v.  Hartnoll,  4  Best  & 
S.  414;  Reader  v.  Kingham,  13  C.  B.  N.  S.  344;  Anderson  v. 
Spence,  72  Ind.  315,  37  Am.  Rep.  162;  Keesling  v.  Frazier, 
119  Ind.  185,  21  N.  E.  552;  Beaman  v.  Russell,  20  Vt.  205,  49 
Am.  Dec.  775.  But  these  judgments  rest  on  the  same  idea  as 
Thompson  v.  Coleman,  4  N.  J.  L.  216, — that  there  existed  no 
other  liability  to  the  promisee  than  that  of  the  promisor,  and 
so  manifestly  the  statute  was  not  applicable.  On  the  other 
hand,  there  is  sufficient  judicial  authority  for  the  proposition 
that  an  undertaking  to  indemnify  a  person  for  becoming  surety 
for  another  is,  in  the  absence  of  any  modifying  fact,  a  promise- 
within  the  statute.  Green  v.  Cresswell,  10  Ad.  &  El.  453; 
Simpson  v.  Nance,  1  Speers  L.  4;  Brown  y.  Adams,  1  Stew. 


HARTLEY  v.  SANDFORD.  391 

(Ala.)  51,  18  Am.  Dec.  36;  Kelsey  v.  Hibbs,  13  Ohio  St.  340; 
Clement's  Appeal,  52  Conn.  464;  Bissig  v.  Britton,  59  Mo.  204, 
-21  Am.  Rep.  379 ;  Nugent  v.  Wolfe,  111  Pa.  471,  56  Am.  Rep. 
291,  4  Atl.  15;  Draughan  v.  Bunting,  31  N.  C.  (9  Ired.  L.)  10; 
Hurt  v.  Ford,  142  Mo.  283,  41  L.  R.  A.  823 ;  44  S.  W.  228 ;  and 
May  v.  Williams,  61  Miss.  126,  48  Am.  Rep.  80,— were  decided 
on  this  basis.  In  the  case  last  mentioned,  COOPER,  J.,  stated 
the  true  rules  very  clearly  and  concisely.  No  doubt,  there  are 
opposing  cases  which  cannot  be  explained  on  any  distinguishing 
circumstances.  Such  seem  to  be  Chapin  v.  Merrill,  4  Wend. 
657;  Jones  v.  Bacon,  145  N.  Y.  446,  40  N.  E.  216;  Dunn  v. 
West,  5  B.  Mon.  376 ;  Vogel  v.  Melms,  31  Wis.  306,  11  Am.  Rep. 
608;  and  Wildes  v.  Dudlow,  L.  R.  19  Eq.  198.  But  some  of 
these  cases  merely  follow  Thomas  v.  Cook,  8  Barn.  &  C.  728, 
without  noticing  the  distinction  which  later  discussion  has 
justified,  while  others  appear  to  have  been  induced  by  the  in- 
justice of  a  refusal  to  enforce  a  promise  on  the  strength  of 
which  the  promisee  incurred  his  liability,  rather  than  by  a 
ready  purpose  to  execute  the  will  of  the  legislature. 

No  doubt,  injustice  may  result  from  the  enforcement  of  the 
statutory  rule;  but  that  rule  sprang  from  a  conviction  that  its 
adoption  would  prevent  more  wrong  than  it  would  permit,  and 
its  enactment  in  England  and  perhaps  every  state  in  this  Union 
indicates  the  generality  of  this  assurance.  Said  Mr.  Justice 
STERETT  in  Nugent  v.  Wolfe,  111  Pa.  471,  56  Am.  Rep.  291,  4 
Atl.  15:  "The  object  of  the  statute  is  protection  against 
'fraudulent  practices  commonly  endeavored  to  be  upheld  by 
perjury,'  and  it  should  be  enforced  according  to  its  true  intent 
and  meaning,  notwithstanding  cases  of  great  hardship  may 
result  therefrom."  With  more  detail  did  Chief  Justice  SHAW, 
in  Nelson  v.  Boynton,  3  Met.  396,  37  Am.  Dec.  148,  say:  "The 
object  of  the  statute,  manifestly,  was  to  secure  the  highest  and 
most  satisfactory  species  of  evidence  in  a  case  where  a  party, 
without  apparent  benefit  to  himself,  enters  into  stipulations  of 
suretyship,  and  where  there  would  be  great  temptation  on  the 
part  of  a  creditor,  in  danger  of  losing  his  debt  by  the  insolvency 
of  his  debtor,  to  support  a  suit  against  the  friends  or  relatives 
of  a  debtor, — a  father,  son  or  brother, — by  means  of  false  evi- 
dence, by  exaggerating  words  of  recommendation,  encourage- 
ment to  forebearance,  and  requests  for  indulgence  into  positive 
contracts." 


392  STATUTE  OF  FRAUDS. 

Our  conclusion  is  that  the  promise  proved  at  the  trial  was 
insufficient  to  sustain  the  action,  that  the  judgment  for  the 
plaintiff  should  be  reversed,  and  that,  in  accordance  with  the 
reservation  at  the  trial,  a  verdict  and  judgment  should  be  entered 
in  favor  of  the  defendant. 


DEXTER  v.  BLANCHARD.    1865. 
11  Allen  365. 

Contract  brought  upon  an  oral  promise  by  the  defendant  to 
pay  to  the  plaintiff  a  bill  for  the  hire  of  horses  and  carriages, 
and  for  injury  to  a  wagon. 

At  the  trial  in  the  superior  court,  before  MORTON,  J.,  the 
plaintiff  offered  to  prove  that  the  horses  and  carriages  were 
hired  and  the  injury  done  by  the  defendant's  minor  son,  to 
whom  the  credit  therefor  was  given;  and  that  not  long  after 
the  date  of  the  last  charge  the  defendant's  son  became  sick, 
and  while  so  sick  the  plaintiff  several  times  demanded  payment 
of  him,  and  thereupon  the  defendant  verbally  promised  to  pay 
the  plaintiff's  bill  if  the  plaintiff  would  not  trouble  his  son  any 
further ;  to  which  the  plaintiff  agreed.  The  son  afterwards  died. 
It  was  admitted  that  the  bill  was  not  for  necessaries. 

The  judge  ruled  that  upon  these  facts  the  action  could  not 
be  maintained,  and  a  verdict  was  returned  accordingly  for  the 
defendant.  The  plaintiff  alleged  exceptions. 

BIGELOW,  C.  J.  The  ruling  of  the  court  was  in  accordance 
with  well  established  principles.  The  defendant's  promise, 
although  it  may  have  been  made  on  a  good  consideration  as  to 
the  plaintiff,  was  nevertheless  a  promise  to  pay  the  debt  of 
another,  and  no  action  can  be  maintained  upon  it.  Gen.  Sts., 
c.  105,  §1.  The  fallacy  of  the  argument  urged  in  behalf  of  the 
plaintiff  lies  in  the  assumption  that  there  was  in  fact  no  debt 
due  from  the  son  of  the  defendant,  because  he  was  a  minor  at 
the  time  he  undertook  to  enter  into  a  contract  with  the  plaintiff. 
A  debt  due  from  a  minor  is  not  void;  it  is  voidable  only;  that 
is,  it  cannot  be  enforced  by  a  suit  at  law  against  the  contracting 
party,  on  plea  and  proof  by  him  of  infancy.  But  it  is  voidable 
only  at  the  election  of  the  infant,  and  until  so  avoided  it  is  a 


BALDWIN  v.  HIERS.  393 

valid  debt.  Nor  can  a  third  person  avail  himself  of  the  minority 
of  a  debtor  to  obtain  any  right  of  security  or  title.  Infancy 
is  a  personal  privilege,  of  which  no  one  can  take  advantage  but 
the  infant.  Kendall  v.  Lawrence,  22  Pick.  540;  Nightingale  v. 
Withington,  15  Mass.  274;  McCarty  v.  Murray,  3  Gray  578. 

The  effect  of  the  doctrine  contended  for  by  the  counsel  for 
the  plaintiff  would  be  that  a  verbal  agreement  to  answer  for 
the  debt  of  another  would  be  valid,  if  it  could  be  shown  that 
the  original  contracting  party  could  have  established  a  good 
defence  to  the  debt  in  an  action  brought  against  him.  "We 
know  of  no  principle  or  authority  on  which  such  a  proposition 
can  be  maintained.  It  certainly  would  open  a  wide  door  for 
some  of  the  mischiefs  which  the  statute  of  frauds  was  designed 
to  prevent. 

The  case  for  the  plaintiff  derives  no  support  from  the  argu- 
ment based  on  proof  of  an  agreement  by  the  plaintiff  to  forbear 
to  sue  the  defendant's  son,  in  consideration  of  the  promise  of 
the  latter  to  pay  the  debt.  It  is  perfectly  well  settled  that  it 
is  not  a  sufficient  ground  to  prevent  the  operation  of  the  statute 
of  frauds,  that  the  plaintiff  has  relinquished  an  advantage  or 
given  up  some  lien  or  claim  in  consequence  of  the  defendant's 
promise,  if  that  advantage  or  relinquishment  did  not  also 
directly  enure  to  the  benefit  of  the  defendant.  It  is  only  when 
such  relinquishment  or  surrender  operates  to  transfer  to  the 
defendant  the  right,  interest  or  advantage  which  the  plaintiff 
gives  up,  or  to  create  in  the  defendant  some  title  or  benefit 
derived  from  that  which  the  other  party  surrenders,  that  the 
promise  can  be  regarded  as  an  original  undertaking,  and  not 
within  the  statute.  Curtis  v.  Brown,  5  Gush.  488,  and  cases 
cited. 

Exceptions  overruled. 


BALDWIN  v.  HIERS.     1884. 
73  Ga.  739. 

L.  S.  Baldwin  brought  suit  against  Charles  Hiers,  and  John 
A.  Hiers,  as  guarantor,  in  a  justice's  court,  on  March  22,  1881. 
The  account  attached  to  the  summons  was  in  the  name  of  Charles 
Hiers.  The  justice  entered  judgment  for  the  plaintiff,  an  ap- 


394  STATUTE  OF  FRAUDS. 

peal  was  entered,  the  jury  found  for  the  plaintiff,  and  a  cer- 
tiorari  was  sued  out  by  the  defendant,  John  A.  Hiers.  The 
evidence  for  the  plaintiff  on  the  trial  in  the  justice's  court  was 
that  Charles  Hiers  was  the  minor  son  of  John  A.  Hiers ;  that 
the  latter  told  plaintiff  to  let  Charles  and  another  son  have 
goods  and  charge  them  to  the  one  who  purchased  them;  to  let 
them  have  goods  and  he  (John  A.)  would  see  that  the  plaintiff 
got  the  money  for  them;  and  the  goods  were  furnished  accord- 
ingly. 

Defendant,  John  A.,  denied  any  such  agreement,  or  that  he 
owed  the  account,  and  testified  that  the  son  worked  for  himself 
during  the  year.  The  son  denied  the  correctness  of  the  account, 
and  asserted  that  he  purchased  most  of  the  goods  charged,  but 
that  some  of  the  account  was  really  for  whisky,  though  charged 
under  other  names. 

The  court  sustained  the  certiorari  and  ordered  a  new  trial. 
Plaintiff  excepted. 

BLANDFORD,  Justice. 

(1)  The  plaintiff  sued  the  defendant  in  a  justice's  court  as 
guarantor,  and  obtained  a  verdict  in  his  favor.     The  evidence 
showed  that  the  son  of  the  defendant  wished  to  purchase  goods 
from  the  plaintiff,  and  the  defendant  agreed  if  plaintiff  would 
let  defendant's  son  have  the  goods  he,  defendant,  would  see  it 
paid.     This  was  an  original  and  not  a  collateral  undertaking. 
If  the  promise  had  been  that  he  would  pay  the  debt  if  his  son 
did  not,  then  such  a  promise  would  be  void  unless  reduced  to 
writing;  it  would  be  a  promise  to  answer  for  the  debt,  default 
or  miscarriage  of  another,  but  an  undertaking  that  if  plaintiff 
would  let  defendant's  son  have  goods,  he  would  see  it  paid,  or 
would  pay  it  himself,  is  an  original  undertaking,  founded  on  a 
sufficient  consideration,  and  is  good  and  binding  on  defendant. 

(2)  And  the  defendant  being  sued  in  a  justice's  court  as 
guarantor  would  make  no  difference,  as  there  are  no  pleadings 
in  that  court. 

(3)  "We  think  the  evidence  was  sufficient  to  sustain  the  ver- 
dict and  judgment  in  the  justice's  court,  and  would  have  been 
satisfied  if  the  court  below  had  allowed  the  same  to  stand,  but 
as  the  court  thought  proper  to  reverse  and  set  aside  the  judg- 
ment of  the  justice's  court,  we  will  not  interfere,  as  this  is 
equivalent  to  the  first  grant  of  a  new  trial.     The  court  below 
is  nearer  the  parties  and  witnesses  than  we  are.     The  testimony 


UNION  BANK  v.  COSTER'S  EXECUTORS.  395 

is  conflicting,  and  we  will  let  the  judgment  of  the  court  below 
stand. 

Judgment  affirmed,    j 


UNION  BANK  v.  COSTER'S  EXECUTORS.     1850. 
3  N.  Y.  203,  53  Am.  Dec.  280. 

On  the  29th  of  May,  1841,  Heckscher  &  Coster,  merchants  of 
the  city  of  New  York,  executed  and  sent  to  Kohn,  Daron  &  Co., 
merchants  in  New  Orleans,  a  letter  of  credit  as  follows : 

"New  York,  May  29,  1841. 

"Sir:  "We  hereby  agree  to  accept  and  pay  at  maturity  any 
draft  or  drafts  on  us  at  sixty  days'  sight,  issued  by  Messrs. 
Kohn,  Daron  &  Co.  of  your  city,  to  the  extent  of  twenty-five 
thousand  dollars,  and  negotiated  through  your  bank.  We  are 
respectfully,  sir,  your  obd't  serv'ts, 

"HERKSCHER  &  COSTER." 

At  the  foot  of  the  letter  of  credit  was  a  guaranty  executed  at 
the  game  time  by  John  G.  Coster,  as  follows : 

"I  hereby  guarantee  the  due  acceptance  and  payment  of  any 
draft  issued  in  pursuance  of  the  above  credit. 

"JOHN  G.  COSTER." 

On  the  faith  of  the  above  letter  of  credit  and  guaranty,  the 
Union  Bank  of  Louisiana,  in  January,  1842,  purchased  two 
drafts  drawn  by  Kohn,  Daron  &  Co.,  on  Heckscher  &  Coster, 
amounting  to  about  $9,000,  which  were  accepted  and  paid  by 
the  latter  according  to  their  agreement.  On  the  14th  of  Feb- 
ruary, 1842,  the  bank,  under  the  same  letter  of  credit,  purchased 
another  draft  for  $4,000,  at  sixty  days'  sight,  drawn  by  and 
upon  the  same  parties;  and  on  the  26th  of  that  month  this 
draft  was  presented  to  Heckscher  &  Coster,  in  New  York,  for 
acceptance,  which  they  refused.  On  the  9th  of  April,  1842, 
the  attorney  for  the  Union  Bank  gave  notice  to  John  G.  Coster 
that  he  had  received  the  draft  for  collection,  and  on  the  2d  of 
May,  1842,  formal  notice  of  the  protest  of  the  draft  for  non- 
payment was  served  on  Mr.  Coster.  In  August,  1844,  John  G. 
Coster  died,  and  the  Union  Bank  subsequently  brought  this  suit 


396  STATUTE  OF  FRAUDS. 

in  the  superior  court  of  the  city  of  New  York,  against  his  execu- 
tors, upon  the  guaranty  above  set  forth,  for  the  purpose  of 
recovering  the  amount  of  the  draft.  On  the  trial,  in  addition 
to  the  facts  already  stated,  it  appeared  that  prior  to  any  of  the 
above  mentioned  transactions  with  the  Union  Bank,  the  said 
letter  of  credit  and  guaranty  had  been  held  by  the  City  Bank 
of  New  Orleans,  which,  upon  the  faith  thereof,  in  December, 
1841,  had  purchased  a  draft  of  $10,000  drawn  by  Kohn,  Daren 
&  Co.  upon  Heckscher  &  Coster.  The  letter  and  guaranty  were 
not  addressed  to  any  particular  person  or  bank. 

PRATT,  J.,  delivered  the  opinion  of  the  court.  Contracts  of 
guaranty  differ  from  other  ordinary  simple  contracts  only  in 
the  nature  of  the  evidence  required  to  establish  their  validity. 
The  statute  requires  every  special  promise  to  answer  for  the 
debt,  default  or  miscarriage  of  another,  to  be  in  writing  sub- 
scribed by  the  party  to  be  charged  thereby,  and  expressing 

therein  the  consideration ;  and  no  parol  evidence  will  be  allowed 

. 

as  a  substitute  for  these  requirements  of  the  statute.  But  in 
other  respects  the  same  rules  of  construction  and  evidence  apply 
to  contracts  of  this  character  which  apply  to  other  ordinary 
contracts.  Hence  the  consideration  which  will  support  a  con- 
tract of  this  character,  as  in  other  cases,  may  consist  in  some 
benefit  to  the  promisor,  or  some  other  person  at  his  request,  or 
some  trouble  or  detriment  to  the  promisee.  (20  "Wend.  184, 
201;  Theobald  on  Pr.  &  Surety,  3,  4;  2  H.  Bl.  312.)  Nor  is 
any  particular  form  of  words  necessary  to  be  used  for  express- 
ing the  consideration ;  but  it  is  enough  if  from  the  whole  instru- 
ment the  consideration  expressly  or  by  necessary  inference  ap- 
pears; so  that  it  be  clear  that  such  and  no  other  was  the  con- 
sideration upon  which  the  promise  was  made.  (24  Wend.  35; 
21  id.  628;  4  Hill  200;  8  Ad.  &  Bl.  846;  5  Barn.  &  Ad.  1109.) 
And  the  rule  allowing  two  or  more  instruments  given  at  the 
same  time  and  relating  to  the  same  subject  matter  to  be  con- 
strued together  as  one  instrument,  applies  also  to  this  class  of 
contracts;  so  that  when  a  guaranty  is  given  at  the  same  time 
with  the  principal  contract  and  forms  a  part  of  the  entire 
transaction,  if  the  consideration  be  stated  in  the  principal  con- 
tract, though  none  be  stated  in  the  guaranty,  it  will  suffice.  8 
John.  35;  9  Wend.  218;  18  id.  114.  So  also  as  in  other  cases, 
parol  evidence  of  the  circumstances  under  which  the  contract 
was  made  may  be  given,  to  aid  the  court  in  giving  a  true  con- 


UNION  BANK  v.  COSTER'S  EXECUTORS.  397 

struction  to  ambiguous  terms  therein,  or  to  show  that  separate 
contracts  relate  to  the  same  subject  matter. 

It  should  also  be  observed  here,  that  our  statute  in  terms  only 

requires  the  contract  to  express  therein  what  it  had  been  well 

settled  the  statute  of  Elizabeth  required  it  to  contain,  and  the 

'same  rules  of  construction  should  therefore  be  applied  in  cases 

under  both  statutes.     24  Wend.  35. 

With  these  observations  in  relation  to  the  law  governing  cases 
of  this  kind,  we  come  to  the  consideration  of  the  contract  in 
question. 

The  letter  of  credit  of  Heckscher  &  Coster  is  an  original  under- 
taking on  the  face  of  it  to  accept  any  drafts  to  be  drawn  upon 
them  at  sixty  days  by  Kohn,  Daron  &  Co.,  to  the  extent  of 
$25,000,  and  negotiated  by  the  bank  to  whom  it  is  addressed. 
The  consideration  of  their  undertaking  appears  very  plainly 
from  the  instrument.  It  is  an  open  proposition  to  the  bank  to 
which  it  is  addressed,  that  if  it  will  purchase  the  drafts  drawn 
by  Kohn,  Daron  &  Co.,  they  will  accept  and  pay  the  same.  As 
soon  therefore  as  the  bank  complied  with  the  proposition  the 
contract  was  closed,  and  the  rights  and  liabilities  of  the  parties 
became  fixed.  Upon  this  part  of  the  contract  there  can  be  no 
question  that  a  sufficient  consideration  appears  upon  the  face  of 
the  contract  to  uphold  it.  But  it  requires  no  greater  or  different 
consideration  to  support  a  guaranty  than  to  support  an  original 
promise.  The  only  difference  in  the  two  cases  consists  in  the 
former  requiring  the  consideration  to  appear  upon  the  contract 
itself,  whereas  the  consideration  to  support  the  latter  may  be 
proved  by  parol.  The  question  therefore  in  this  case  is  whether 
the  consideration  of  the  undertaking  of  the  defendants'  testator 
appears  upon  the  instrument  itself,  or  rather  whether  the  two 
instruments  may  be  read  together  so  that  the  same  consideration 
shall  support  both. 

The  guaranty  is  without  date  and  at  the  foot  of  the  letter  of 
credit.  Independent  of  the  parol  testimony  it  should  be  deemed 
to  have  been  made  at  the  same  time.  It  is  addressed  to  the 
same  person  and  relates  to  the  same  subject  matter.  It  should 
therefore,  within  every  rule  of  construction,  be  deemed  part 
of  the  same  transaction,  and  the  two  instruments  should  be  read 
together  as  one  contract.  The  two  would  read  thus:  "In 
consideration  that  you,  the  Union  Bank  of  Louisiana,  will  pur- 
chase any  draft  or  drafts  to  be  issued  by  Kohn,  Daron  &  Co., 


398  STATUTE  OP  FRAUDS. 

upon  Heckscher  &  Coster,  at  sixty  days,  not  exceeding,  $25,000, 
we  the  said  Heckscher  &  Coster  will  accept  and  pay  the  same; 
and  I  the  said  John  G.  Coster  agree  that  Heckscher  &  Coster 
shall  accept  and  pay  the  same."  Now  it  seems  to  me  clear  that 
such  is  the  fair  reading  of  the  two  contracts  taken  together; 
and  although  the  contract  of  John  G.  Coster  may  be  deemed 
collateral,  yet  had  the  two  been  drawn  in  the  above  form  no 
question  could  have  been  raised  upon  the  statute  of  frauds. 
But  what  may  be  fairly  inferred  from  the  terms  of  a  contract 
should  be  considered,  for  the  purpose  of  giving  it  effect,  as 
contained  in  it;  and  this  rule  applies  as  well  to  collateral  as  to 
original  undertakings.  5  Hill,  147. 

There  is  a  wide  difference  between  the  guaranty  of  an  existing 
debt  and  the  guaranty  of  a  debt  to  be  contracted  upon  the  credit 
of  the  guaranty.  It  is  the  difference  between  a  past  and  future 
consideration.  A  past  consideration,  unless  done  at  the  request 
of  the  promisor,  is  not  sufficient  to  support  any  promise.  But 
a  promise  to  do  an  act  in  consideration  of  some  act  to  be  done 
by  the  promisee  implies  a  request,  and  a  compliance  on  the  part 
of  the  latter  closes  the  contract  and  makes  it  binding.  And 
although  it  may  be  necessary  from  the  nature  of  the  case  to 
prove  performance  by  parol,  yet  such  evidence  is  no  violation 
of  the  statute  requiring  the  consideration  to  be  in  writing.  The 
consideration  of  the  promise  is  expressed,  and  the  parol  evidence 
is  only  used  to  show,  not  what  the  consideration  is,  but  that  the 
act  which  constitutes  that  consideration  has  been  performed. 
Any  other  rule  would  require  every  person  to  whom  a  letter  of 
credit  is  directed  to  accept  the  same  in  writing  before  the  drawer 
would  be  bound.  For  instance,  a  letter  drawn  in  the  country 
and  addressed  to  a  merchant  in  the  city,  guaranteeing  the  re- 
sponsibility of  the  person  for  whose  benefit  the  same  was  drawn 
for  a  given  bill  of  goods  to  be  sold  to  him,  would  require  a 
written  acceptance  by  the  city  merchant  before  it  would  be 
binding  upon  the  drawer.  No  such  strict  rule  can  be  found 
supported  by  any  adjudication.  I  am  therefore  satisfied  that 
the  consideration  of  the  guaranty  in  the  case  at  bar  sufficiently 
appears  in  the  contract,  and  that  the  same  was  valid  and  binding 
upon  the  defendants'  testator.  I  have  not  been  able  to  find  a 
case  in  our  own  or  the  English  courts  which  would  conflict  with 
the  doctrine  above  advanced;  but  on  the  contrary,  the  books 
are  full  of  cases  similar  in  their  circumstances  to  this  case, 


UNION  BANK  v.  COSTER'S  EXECUTORS.  399 

•where  the  guaranty  has  been  sustained.  8  John.  35 ;  11  id.  221 ; 
10  Wend.  218;  S.  C.  in  error,  13  id.  114;  12  id.  218;  24  id.  35; 
4  Hill  200;  4  Denio  559;  1  Ad.  &  D.  57;  5  Bligh's  N.  E.  1; 
7  Mees.  &  Wels.  410;  9  East  348;  1  Camp.  242;  3  Brod.  &  Bing. 
211 ;  4  C.  &  P.  N.  P.  59 ;  8  Dowl.  &  Kyi.  62. 

The  next  question  raised  in  the  case  is  as  to  notice  of  accept- 
ance. "We  must  hold  the  law  to  be  settled  in  this  state  that 
where  the  guaranty  is  absolute  no  notice  of  acceptance  is  neces- 
sary. Judge  COWEN  in  Douglass  v.  Howland,  (24  Wend.  35,) 
and  Judge  BEONSON,  in  Smith  v.  Dann  (6  Hill,  543),  examined 
the  cases  at  length  upon  this  question,  and  they  showed  conclu- 
sively that  by  the  common  law  no  notice  of  the  acceptance  of 
any  contract  was  necessary  to  make  it  binding,  unless  it  be 
made  a  condition  of  the  contract  itself,  and  that  contracts  of 
guaranty  do  not  differ  in  that  respect  from  other  contracts. 
In  this  case  the  only  condition  of  Coster's  undertaking  was  that 
the  bank  should  purchase  the  drafts  to  be  issued  by  Kohn, 
Daron  &  Co.,  and  upon  complying  with  that  condition  the  rights 
of  the  parties  became  fixed,  and  the  contract  binding.  There 
is  nothing  in  the  contract  from  which  we  can  infer  that  it  was 
the  intention  of  the  parties  that  notice  should  be  given  in  order 
to  fix  the  guarantor.  No  more  is  required  to  make  the  guarantor 
liable  than  to  make  Heckscher  &  Coster,  and  the  only  notice  to 
them  necessary  was  the  presentment  of  the  drafts  for  their 
acceptance  within  a  reasonable  time.  Allen  v.  Rightmere,  20 
John.  365;  Clark  v.  Burdett,  2  Hall  197;  Cro.  Jac.  287,  685; 
2  Salk.  457;  Vin.  Ab.  Notice,  A.  3;  Com.  Dig.  Plead.  C.  75;  2 
Chitty  463. 

As  to  notice  of  non-acceptance  and  non-payment  of  the  bills 
by  the  drawees,  that  can  only  involve  the  subject  of  laches  on 
the  part  of  the  holders  of  the  drafts,  and  all  the  cases,  both  in 
England  and  in  this  country,  concur  in  holding  that  this  defense 
can  only  be  set  up  to  an  action  against  the  surety  in  cases  where 
he  has  suffered  damage  thereby,  and  then  only  to  the  extent  of 
such  damage.  7  Peters  117;  12  id.  497;  1  Mason  323,  368;  1 
Story  22 ;  13  Conn.  28 ;  5  Man.  &  Gran.  559 ;  13  Mees.  &  Wels. 
452;  3  Kent's  Com.  122.  If,  therefore,  it  were  necessary  in  this 
case  to  give  any  notice,  no  evidence  has  been  given  showing  that 
the  defendants,  or  the  guarantor,  suffered  any  loss  in  conse- 
quence of  the  want  of  such  notice. 

The  only  remaining  question,  therefore,  worthy  of  considera- 


400  STATUTE  OF  FRAUDS. 

tion  in  this  case,  arises  out  of  the  fact  that  another  bank  had 
previously  purchased  drafts  drawn  in  pursuance  of  the  letter 
\,    of  credit  and  guaranty.     It  is  claimed  that  by  such  purchase 
>  the  contract  became  a  fixed  and  binding  contract  between  such 
bank  and  the  promisor,  and  thereby  lost  its  negotiable  character, 
and  became  located  so  that  no  other  person  or  bank  could  pur- 
chase drafts  upon  the  credit  of  it. 

The  guaranty,  in  this  case,  was  manifestly  intended  to  accom- 
pany the  letter  of  credit,  and  is  subject,  in  this  respect,  to  the 
same  construction.  If,  therefore,  it  was  competent  for  Kohn, 
Daron  &  Co.,  to  draw  several  drafts  not  exceeding  the  limit  in 
the  bill  of  credit  specified,  and  to  negotiate  them  at  different 
banks,  and  Heckscher  &  Coster  would  be  bound  by  their  letter 
of  credit  to  accept  and  pay  them,  the  guarantor  would  also  be 
liable  to  the  same  extent.  As  a  general  rule  the  surety  is  liable 
to  the  same  extent  as  the  principal,  unless  he  expressly  limits 
his  liability.  (Theobold  on  Prin.  and  Surety  46.)  It  therefore 
only  becomes  necessary  to  examine  the  letter  of  credit,  and  ascer- 
tain whether  it  was  intended  to  be  limited  to  one  particular 
bank,  or  is  a  general  letter  of  credit  to  any  and  all  persons  who 
may  advance  money  upon  it.  It  is  somewhat  singular  that  we 
find  so  few  adjudications  in  our  courts  upon  a  class  of  commer- 
cial instruments  which  enter  so  largely  into  the  commerce  and 
business  of  this  country,  and  of  the  world. 

In  England  it  seems  to  be  at  this  time  questionable  whether 
a  party  who  advances  money  upon  a  general  letter  of  credit 
can  sustain  an  action  upon  it.  Russell  et.  aV  v.  "Wiggins,  2 
Story  214;  Bank  of  Ireland  v.  Archer,  2  Mees.  &  Welsby  383. 
The  reason  assigned  is  that  there  is  no  privity  of  contract  be- 
tween them.  It  is  there  assumed  that  it  is  only  a  contract  be- 
tween the  drawer  of  the  letter  and  the  person  for  whose  benefit 
it  is  drawn.  But  in  this  country  the  contrary  doctrine  is  well 
settled.  Letters  of  credit  are  of  two  kinds,  general  and  special. 
A  special  letter  of  credit  is  addressed  to  a  particular  individual 
by  name,  and  is  confined  to  him,  and  gives  no  other  person  a 
right  to  act  upon  it.  A  general  letter,  on  the  contrary,  is  ad- 
dressed to  any  and  every  person,  and  therefore  gives  any  person 
to  whom  it  may  be  shown  authority  to  advance  upon  its  credit. 
A  privity  of  contract  springs  up  between  him  and  the  drawer 
of  the  letter,  and  it  becomes  in  legal  effect  the  same  as  if  ad- 
dressed to  him  by  name.  Russell  v.  Wiggins,  2  Story's  Rep. 


UNION  BANK  v.  COSTER'S  EXECUTORS.  401 

214;  12  Mass.  154;  2  Metcalf  381;  12  Wend.  393;  12  Peters  207; 
Burkhead  v.  Brown,  5  Hill  641;  Story  on  Bills;  see  Beames' 
Lex.  Mer.  444. 

But  these  general  letters  of  credit  may  be  subdivided  into  two 
kinds  those  that  contemplate  a  single  transaction,  and  those  that 
contemplate  an  open  and  continued  credit,  embracing  several 
transactions.  In  the  latter  case  they  are  not  generally  confined 
to  transactions  with  a  single  individual,  but  if  the  nature  of 
the  business  which  the  letter  of  credit  was  intended  to  facilitate, 
requires  it,  different  individuals  are  authorized  to  make  advances 
upon  it,  and  it  then  becomes  a  several  contract  with  each  indi- 
vidual to  the  amount  advanced  by  him.  Thus  a  general  letter 
of  credit  may  be  issued  to  a  person  to  enable  him  to  purchase 
goods  in  the  city  of  New  York,  for  a  country  store.  The  very 
nature  of  the  business  requires  him  to  deal  with  different  indi- 
viduals and  houses  in  order  to  obtain  the  necessary  assortment. 
It  has  never,  as  I  am  aware,  been  questioned  that  the  guarantor 
might  be  bound  to  several  persons  who  should  furnish  goods 
upon  the  credit  of  the  letter. 

So  letters  are  issued  by  commission  houses  in  the  city,  to 
enable  persons  to  purchase  produce  in  the  western  states.  The 
money  is  obtained  from  the  local  banks  in  those  states  by  drafts 
drawn  upon  those  houses  and  upon  the  faith  of  the  letters  of 
credit.  It  may  often  happen  that  a  single  bank  can  not  furnish 
the  requisite  amount,  or  it  may  be  necessary  to  use  money  in 
different  and  distant  localities.  I  am  not  aware  of  any  question 
ever  having  been  raised  as  to  the  authority  of  different  banks 
to  act  upon  the  same  letter  of  credit.  It  is  absolutely  necessary 
that  such  should  be  the  effect  of  them  in  order  to  facilitate  the 
commerce  of  the  country,  and  to  carry  out  the  object  of  the 
parties  in  issuing  the  letters  of  credit.  Brukhead  v.  Brown,  5 
Hill  641;  2  Story's  Rep.  214. 

The  letter  of  credit  in  this  case  was  evidently  intended  to  be 
general;  it  did  not  contemplate  a  single  transaction,  or  draft 
for  the  whole  amount,  but  several  drafts  limited  in  the  aggregate 
to  twenty-five  thousand  dollars.  Although  the  address  "sir," 
and  "your  bank,"  is  in  the  singular  number,  yet  I  think  it  was 
intended  to  be  used  in  a  distributive  sense,  and  apply  to  any 
bank  or  banks  who  should  purchase  the  drafts.  I  can  see  no 
object  which  the  drawers  should  have  for  limiting  the  party 
for  whose  benefit  the  letter  was  issued  to  a  single  bank.  It  is 

26 


402  EQUITY  WILL  COMPEL  PRINCIPAL  TO  PAY. 

said  that  it  would  enable  them  more  readily  to  revoke  the 
authority.  But  these  letters  -are  not  issued  without  either  un- 
doubted confidence  in  the  persons  for  whose  benefit  they  are 
drawn,  or  upon  ample  security.  The  idea  of  giving  notice  of 
revocation  to  any  party  but  that  for  whose  benefit  they  are 
drawn,  is  never  entertained  by  the  guarantors  in  cases  of  general 
letters.  When  they  wish  to  provide  for  any  such  contingency 
the  letters  are  framed  accordingly.  Again,  in  this  case  the 
parties  themselves  have  treated  this  letter  as  not  limited  to  a 
single  bank,  for  they  accepted  bills,  which  had  been  discounted 
by  the  plaintiffs. 

I  am,  therefore,  satisfied  that  the  plaintiffs  were  authorized 
to  purchase  bills  upon  the  faith  of  the  letter  and  accompanying 
guaranty,  and  that  the  previous  purchase  of  bills  by  another 
.bank  is  no  defense. 

Whether  the  letters  had  been  revoked  with  the  knowledge  of 
the  plaintiffs  before  the  draft  was  discounted  by  them,  was  a 
question  of  fact  for  the  jury.  It  would  clearly  constitute  no 
defense  unless  the  plaintiffs  had  notice  of  it.  The  judgment 
of  the  superior  court  must  therefore  be  affirmed  with  costs. 

Judgment  affirmed. 


CHAPTER  XIII. 

EQUITY  WILL  COMPEL  PRINCIPAL  TO  PAY. 

a.  The  surety  may  in  equity  compel  the  principal  to  pay  the 
debt  on  which  the  former  is  only  secondarily  liable. 

DOBIB  v.  FIDELITY  &  CASUALTY  CO.     1897. 
95  Wis.  540;  70  N.  W.  Eep.  482,  60  Am.  St.  Rep.  135. 

NEWMAN,  J.  The  question  presented  is  whether  the  com- 
plaint states  a  cause  of  action.  The  action  is  by  a  surety  to 
compel  his  principal  to  pay  the  debt  for  which  both  are  liable, 
for  the  exoneration  of  the  surety.  It  is  ultimately  the  defend- 
ant's liability.  That  party  is  the  principal  debtor,  who  is 
ultimately  liable  for  the  debt.  The  question  is  whether  a  surety 
can,  in  equity,  compel  his  principal  to  exonerate  him  from 
liability,  by  extinguishing  the  obligation,  without  having  first 
paid  it  himself.  It  seems  to  be  well  settled  that  a  surety  against 


WENDLANDT  v.  SOHRB.  403 

whom  a  judgment  has  been  rendered  may,  without  making  pay- 
ment himself,  proceed  in  equity  against  his  principal  to  subject 
the  estate  of  the  latter  to  the  payment  of  the  debt,  in  exoneration 
of  the  surety.  2  Beach  Eq.  Jur.  §  903 ;  3  Pom.  Eq.  Jur.  §  1417 ; 
Will.  Eq.  Jur.  110;  United  New  Jersey  Eailroad  &  Canal  Co. 
v.  Long  Dock  Co.,  38  N.  J.  Eq.  142;  Beaver  v.  Beaver,  23  Pa, 
St.  167;  Gibbs  v.  Mennard,  6  Paige  258;  Warner  v.  Beardsley, 
8  Wend:  194 ;  7  Am.  &  Eng.  Enc.  Law,  486,  cases  in  note.  The 
judgment  of  the  superior  court  of  Douglas  county  is  affirmed. 


WENDLANDT  v.  SOHRE.     1887. 
37  Minn.  162;  33  N.  W.  Rep.  700. 

Appeal  from  district  court,  Blue  Earth  county. 

MITCHELL,  J.  The  parties  to  this  action  had  been  partners 
in  .business,  and  in  that  capacity  contracted  a  debt  of  $170  to 
William  Deering  &  Co.,  for  machinery  purchased.  Subse- 
quently the  partnership  was  dissolved,  and  a  full  accounting 
and  settlement  had,  and  all  matters  pertaining  to  the  partnership 
business,  both  as  between  the  partnership  and  third  persons, 
and  between  the  partners,  themselves,  were,  as  was  supposed, 
fully  considered,  settled,  and  adjusted.  But,  by  inadvertence, 
this  debt  to  Deering  &  Co.,  was  overlooked,  and  left  unpaid. 
When  this  debt  became  due,  payment  being  demanded  of  plain- 
tiff, he  paid  one-half  of  it,  and  requested  Deering  &  Co.,  to 
demand  payment  of  the  other  half  from  defendant.  This  was 
done,  but  defendant  refused  to  pay.  Thereupon  plaintiff 
brought  this  action  to  compel  defendant  to  pay  Deering  &  Co., 
the  remaining  half  of  the  debt,  so  that  plaintiff  might  be  relieved 
of  liability. 

If,  as  between  plaintiff  and  defendant,  the  former  bears  the 
relation  of  surety  for  the  latter,  there  can  be  no  doubt  of  his 
right  to  maintain  this  action.  As  soon  as  a  surety's  obligation 
to  pay  becomes  absolute  he  is  entitled  in  equity  to  require  the 
principal  debtor  to  exonerate  him;  and  he  may  file  a  bill  to 
compel  this  although  the  creditor  has  not  molested  him,  it  being 
unreasonable  that  a  man  should  always  have  such  a  cloud  hang- 
ing over  him.  Theob.  Prin.  &  Sur.  169 ;  Brandt  Sur.  §  192. 


404  EQUITY  WILL  COMPEL  PRINCIPAL  TO  PAY 

This  familiar  rule  of  equity  practice  is  incorporated  into  our 
statutes.    Gen.  St.  1878,  c.  66,  §  130. 

The  court  below,  however,  sustained  the  demurrer  to  the  com- 
plaint upon  the  ground  that  the  relation  of  principal  and  surety 
did  not  exist  between  these  parties,  that  they  were  simply  joint 
debtors,  and  that  plaintiff's  only  remedy  was  an  action  for 
contribution,  after  paying  the  entire  debt.  In  this  we  think 
the  court  erred.  Undoubtedly  both  plaintiff  and  defendant  are, 
in  their  relations  to  William  Deering  &  Co.,  joint  debtors  and 
principals.  But  this  is  unimportant.  The  relation  of  principal 
and  surety  is  fixed  by  the  arrangements  and  equities  between 
the  debtors  or  obligors  themselves.  It  is  also  true  that,  when 
they  contracted  this  debt  as  partners,  the  plaintiff  and  defendant 
were  inter  se  joint  debtors.  But  parties  who  contract  a  debt 
V  as  partners  or  joint  debtors  may,  by  reason  of  subsequent  ar- 
rangements or  transactions  in  reference  to  the  debt,  become,  as 
between  each  other,  principal  and  surety.  For  example,  a 
retiring  member  of  a  firm  becomes  surety  of  the  other  partners, 
who  assume  the  firm  debts.  Brandt  Sur.  23;  3  Pom.  Eq.  Jur. 
§§  1417,  1418. 

The  question  is  not  what  relation  do  the  debtors  bear  to  the 
creditor,  nor  even  in  what  relation  did  they  contract  the  debt, 
but  what  relation  do  they  now  bear  to  each  other  in  respect  to 
it.  A  surety  is  any  person  who,  being  liable  to  pay  a  debt,  is 
entitled,  if  it  is  enforced  against  him,  to  be  indemnified  by 
some  other  person  who  ought  himself  to  have  paid  it  before  the 
surety  was  compelled  to  do  so.  Whenever,  as  between  two 
debtors,  liable  to  the  creditor  for  the  same  debt,  it  is  the  debt 
of  one  of  them,  the  other  may  be  said  to  be  his  surety.  Smith 
v.  Shelden,  35  Mich.  48.  This  is  precisely  the  case  here.  The 
partnership  business  has  been  fully  and  finally  adjusted  and 
settled  except  this  one  debt,  which  was  accidentally  overlooked. 
As  between  the  parties,  each  should  have  paid  one-half  of  it. 
Plaintiff  has  paid  his  half;  defendant  should  pay  the  other 
half.  Hence  as  to  that  half  plaintiff  bears  to  defendant  the 
relation  of  surety,  and  as  such  is  entitled  to  maintain  this  action 
for  indemnity. 

The  respondent  in  his  argument  confounds  this  action  with 
one  for  contribution.  Whether  the  creditor  should  have  been 
made  a  party  to  this  action  is  not  before  us,  no  such  question 
being  raised  by  the  demurrer. 


RISLEY  v.  BROWN.  405 

BERRY,  J.,  owing  to  illness,  took  no  part  in  the  decision  of 
this  case. 


CHAPTER  XIV. 

EFFECT  OF  DEATH  OF  SURETY. 

a.   At  common  law  the  death  of  a  surety  discliarged  his  estate 
from  liability. 

RISLEY  v.  BROWN.     1876. 
67  N.  r.  160. 

The  nature  of  the  motion  and  the  facts  sufficiently  appear  in 
the  opinion. 

EARL,  J.  This  is  a  motion  for  an  order  substituting  the  ad- 
ministrator of  Abner  Brown  as  defendant,  he  having  died  during 
the  pendency  of  the  appeal  to  this  court. 

The  action  was  upon  a  joint  promissory  note  made  by  the 
defendants,  Abner  Brown  signing  simply  as  surety.  The  prin- 
cipal interposed  no  defense.  The  action  was  tried  before  a 
referee,  and  the  plaintiff  recovered  judgment,  and  judgment 
was  entered  against  both  defendants.  Abner  Brown  alone  ap- 
pealed to  the  General  Term  of  the  Supreme  Court,  and  there 
the  judgment  was  affirmed.  He  then  appealed  to  this  court, 
and  filed  the  usual  undertaking  providing  for  the  payment  of 
the  judgment,  if  it  was  affirmed  or  the  appeal  dismissed.  Pend- 
ing the  appeal,  he  died,  and  an  administrator  has  been  ap- 
pointed upon  his  estate. 

The  substitution  ought  not  to  be  made.  It  is  the  settled  law 
of  this  State  that  upon  the  death  of  one  of  the  makers  of  a 
joint  promissory  note,  who  was  not  liable  for  the  debt  irre- 
spective of  the  joint  obligation,  but  who  signed  the  note  simply 
as  surety,  his  estate  is  absolutely  discharged,  both  in  law  and 
equity  (Getty  v.  Binsse,  49  N.  Y.  385) ;  and  it  makes  no  dif- 
ference that  the  surety  died  after  a  joint  judgment  against 
him  and  the  principal.  (The  United  States  v.  Price,  9  How. 
(U.  S.)  83).  In  the  latter  case,  the  action  was  upon  a  joint  and 
several  bond  against  principal  and  surety,  and  a  joint  judgment 
was  recovered.  The  surety  then  died,  and  it  was  held,  the 
obligee  having  treated  the  bond  as  joint  by  bringing  an  action 


406          EFFECT  OF  DEATH  OF  SURETY. 

thereon  against  principal  and  surety  jointly,  and  the  bond 
being  merged  in  the  judgment  which  was  a  joint  obligation, 
that  his  estate  was  discharged,  both  in  law  and  equity.  It  is, 
therefore,  unquestioned  that  the  judgment  appealed  from  cannot 
be  enforced  against  the  estate  of  Abner  Brown. 

But  the  claim  is  made  that  the  giving  of  the  undertaking 
upon  the  appeal  altered  the  position  of  the  surety,  and  imposed 
upon  him  an  independent  liability  to  pay  the  judgment  in  case 
of  its  affirmance;  but  the  difficulty  with  this  claim  is  that  the 
judgment  can  never  be  properly  affirmed.  As  the  judgment 
can  never  be  enforced  against  the  estate  of  a  surety,  there  can 
be  no  propriety  in  substituting  his  administrator.  As  the  estate 
is  absolutely  discharged  from  all  liability  upon  the  judgment, 
we  should  not  continue  the  appeal  simply  for  the  purpose  of 
enabling  the  plaintiff,  in  case  of  affirmance,  to  bring  an  action 
upon  the  undertaking.  But  it  must  be  true  that  whatever  dis- 
charges the  estate  of  a  surety  in  such  a  case  from  the  judgment, 
also  discharges  it  from  the  undertaking.  There  can  be  no  lia- 
bility upon  the  undertaking  given,  after  the  judgment  has  been 
destroyed  or  discharged,  either  by  the  act  of  the  parties  or 
the  operation  of  law.  It  is  quite  inadmissible  to  construe  the 
undertaking  to  mean  that  the  surety  would  pay  the  judgment, 
even  if  he  or  his  estate  would,  after  the  giving  of  the  undertak- 
ing, be  discharged  from  all  liability  upon  the  judgment. 

The  motion  must  be  denied,  without  costs. 

All  concur. 

Motion  denied. 


b.  In  case  of  a  continuing  guaranty  the  death  of  the  surety  re- 
vokes the  guaranty,  upon  notice  to  the  creditor. 

HYLAND  v.  HABICH.    1889. 

150  Mass.  112;  22  N.  E.  Rep.  765;  6  L.  R.  A.  383;  15  Am.  St. 

Rep.  174. 

Bill  to  redeem  lands  from  a  mortgage.  The  defendant,  Habich, 
was  a  resident  of  Germany.  Bridget  Hyland  gave  defendant  a 
mortgage  to  secure  all  indebtedness  which  her  husband,  Matthew, 
was  then  under  to  the  defendant,  "and  also  the  price  or  value 
of  all  such  wares,  goods,  or  merchandise  as  may  be  purchased 


,    HYLAND  v.  HABICH.  407 


or  consigned  to  said  HfflSeft,  and  all  notes  and  obligations  given 
or  to  be  given  therefor."  On  October  17,  1887,  Bridget  Hyland 
died,  and  the  fact  of  her  death  was  made  known  to  defendant 
on  the  same  day.  The  question  was,  whether  any  order  to  affect 
a  redemption  was  necessary  for  the  plaintiff  to  pay  indebtedness 
arising  from  sales  made  to  the  mortgagor's  husband  after  her 
death. 

KNOWLTON,  J.  The  mortgage,  which  under  the  agreed  state- 
ment of  facts  the  plaintiffs  seek  to  redeem,  was  given  to  secure 
the  payment,  —  1.  Of  an  existing  indebtedness  due  from  Matthew 
Hyland;  and  2.  Of  such  indebtedness  as  might  afterwards 
accrue  from  the  sale  or  consignment  of  goods  to  said  Hyland. 
The  debt  then  existing  was  long  ago  paid,  and  we  need  to  consider 
only  that  part  of  the  mortgage  which  relates  to  the  indebtedness 
thereafter  to  be  contracted. 

The  language  of  the  condition  in  the  mortgage  impliedly  gave 
the  mortgagee  a  right  to  sell  goods  to  said  Hyland  for  an  in- 
definite time  upon  the  faith  of  this  security.  It  was  like  an 
ordinary  continuing  guaranty  of  payment  for  goods  to  be  sold, 
except  that,  instead  of  a  personal  undertaking  to  pay  as  a  guar- 
antor, it  was  a  transfer  of  the  estate  as  security  for  the  payment. 
The  mortgagee  had  the  same  right  to  sell,  trusting  to  the  se- 
curity, and  there  were  the  same  limitations  upon  his  right  as  if 
the  mortgagor  had  given  merely  a  personal  continuing  guaranty. 
He  had  an  implied  authority  from  the  owner  of  the  mortgaged 
estate,  which  was  subject  to  revocation  at  any  time,  and  which 
would  be  revoked  by  the  death  of  the  owner.  The  principles 
laid  down  in  Jordan  v.  Dobbins,  122  Mass.  168,  are  decisive  of 
this  case. 

The  defendants  urge  that  a  conveyance  of  property  as  security 
implies  that  the  authority  to  sell  is  to  continue  after  the  death 
of  the  owner,  until  the  owners  of  the  estate  see  fit  to  revoke  the 
authority.  But  we  see  no  good  ground  for  this  contention.  If 
the  security  were  by  a  mortgage  of  personal  property,  there 
would  be  no  one  after  the  death  of  the  mortgagor  who  could 
revoke  the  authority  until  the  appointment  of  an  administrator. 
In  the  meantime,  the  property  might  be  charged  to  its  full  value. 
And  if  the  mortgage  were  of  real  estate,  different  heirs  might 
disagree  as  to  the  action  to  be  taken.  We  are  of  opinion  that 
the  right  to  sell  upon  the  faith  of  the  guaranty  rests  upon  a 
continuing  authority,  and  that,  where  a  mortgage  is  given,  in- 


408  EFFECT  OF  DEATH  OF  SURETY. 

stead  of  a  personal  promise  as  security,  the  authority  proceeds 
from  the  mortgagor,  and  is  terminated  by  his  death.  Even  in 
England,  where  it  is  held  that  such  a  guaranty  is  terminated, 
not  by  the  death  of  the  guarantor,  but  by  notice  of  his  death, 
the  knowledge  which  the  mortgagee  in  the  present  case  had  of 
the  death  of  the  mortgagor  wrould  be  deemed  constructive  notice 
sufficient  to  determine  his  right  to  sell  on  the  faith  of  the  se- 
curity. Harriss  v.  Fawcett,  L.  E.  15  Eq.  311 ;  L.  E.  8  Ch.  866 ; 
Coulthart  v.  Clementson,  5  Q.  B.  Div.  42,  47;  Lloyd  v.  Harper, 
16  Ch.  D.  290,  314,  319. 

Under  the  agreement  of  the  parties,  the  plaintiffs  are  entitled 
to  redeem  upon  the  payment  of  $1,490,  with  interest  from  July 
28,  1888,  and  costs. 

Decree  accordingly. 


JOHNSON  v.  HAEVEY.     1881. 
84  N.  T.  363;  38  Am.  Rep.  515. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  fourth  judicial  department,  entered  upon  an  order 
made  October  5,  1880,  which  affirmed  an  order  of  Special  Term 
overruling  defendant's  exceptions  to  the  report  of  a  referee,  to 
whom  a  claim  against  the  estate  of  John  G.  Allen,  defendant's 
intestate,  was  referred  under  the  statute,  and  confirming  said 
report. 

The  nature  of  the  claim  and  the  facts  appear  sufficiently  in 
the  opinion. 

FINCH,  J.  The  plaintiff  and  the  defendant's  intestate,  in 
the  lifetime  of  the  latter,  were  joint^  sureties  in  an  undertaking 
given  in  an  action  for  the  claim  and  delivery  of  personal  prop- 
erty, in  which  action  one  Parshall  was  plaintiff  and  the  sheriff 
of  Erie  county  defendant.  Neither  of  the  sureties  were  parties 
to  that  action,  but  executed  the  undertaking  for  the  accommoda- 
tion of  the  sheriff,  or  those  claiming  through  him.  Before  a 
trial  of  that  litigation  one  surety,  John  G.  Allen,  died,  and  the 
present  defendant  was  duly  appointed  his  administrator,  and 
thereafter  judgment  was  obtained  in  the  action  in  which  the 
undertaking  was  given,  and  the  surviving  surety,  by  reason  of 


JOHNSON  v.  HARVEY.  409 

his  liability  thereon,  compelled  to  pay  the  sum  of  $1,592.74. 
For  the  one-half  part  of  this  he  now  claims  contribution  from 
the  estate  of  his  co-surety,  and  the  sole  question  presented  and 
argued  is,  whether  such  contribution  can  be  enforced.  The 
question  is  hardly  an  open  one  in  this  State.  It  was  held  in 
Bradley  v.  Burwell  (3  Den.  61)  that  the  death  of  one  of  two 
or  more  sureties  did  not  relieve  his  estate  from  the  liability  to 
contribute,  and  the  decision  was  put  upon  the  ground  that  the 
law  implies  a  contract  between  co-sureties  to  contribute  ratably 
toward  discharging  any  liability  which  they  may  incur  in  behalf 
of  their  principal,  such  contract  originating  at  the  time  they 
execute  the  original  undertaking,  and  that  in  the  case  of  the 
death  of  either,  this  obligation  devolves  upon  his  legal  repre- 
sentatives, and  is  like  any  other  contract  made  by  one,  in  his 
life-time,  to  pay  money  at  a  future  time,  absolutely  or  con- 
tingently, who  dies  before  any  breach  of  the  contract.  The 
English  cases  on  the  subject  were  cited  in  the  opinion  of  the 
court,  as  also  those  of  Massachusetts;  and  it  is  also  to  be  ob- 
served that,  in  the  argument  there  made,  the  case  of  Waters 
v.  Riley  (1  Harr.  &  Gill.  305)  was  cited  by  the  learned  counsel 
who  contended  against  the  liability  of  the  deceased  surety's 
estate,  as  it  is  again  brought  to  our  attention  here.  That  case 
was  decided  by  a  divided  court,  and,  like  the  authorities  in 
Pennsylvania,  went  upon  the  ground  that  the  liability  of  the 
sureties  to  each  other  rested,  not  upon  contract  express  or  im- 
plied, but  was  the  product  and  the  mere  creature  of  equity.  la 
Bradley  v.  Burwell  the  same  ground  was  distinctly  taken  on  the 
argument,  and  advocated  by  an  ability  which  never  left  unsaid 
what  was  worthy  to  be  uttered,  and  yet  the  court  determined 
that  the  liability  of  the  co-surety  rested  upon  an  implied  con- 
tract to  contribute,  originating  at  the  date  of  the  joint  signature, 
and  which  bound  the  estate  of  one  or  more  who  died  before  the 
principal  liability  accrued.  The  learned  counsel  for  the  ap- 
pellant seems  to  have  been  led  into  a  doubt  of  the  authority  of 
Bradley  v.  Burwell,  and  to  a  hope  that  we  would  disregard  it, 
from  what  has  been  said  by  us  in  cases  where  the  creditor,  and 
not  the  co-surety,  was  pursuing  a  supposed  remedy  against  the 
estate  of  a  deceased  surety.  In  those  cases,  which  were  cases  of 
joint  obligation,  we  have  held  that  such  estate  is  absolutely  dis- 
charged, both  in  law  and  equity;  that  death  puts  an  end  to 
the  obligation  of  the  surety;  that  the  survivor  only  is  liable; 


410  EFFECT  OF  DEATH  OF  SURETY. 

stating  the  conclusion  with  some  force  and  strength  of  phrase. 
But  the  doctrine  was  neither  new  nor  recent.  The  same  thing 
had  already  been  said  in  Bradley  v.  Burwell  without  at  all 
modifying  the  view  expressed  as  to  the  liabilities  of  the  sureties 
between  themselves.  The  argument,  from  general  expressions, 
wrested  from  their  aim  and  purpose,  detached  from  their  setting, 
is  often  plausible,  but  rarely  useful  or  effective.  We  have  often 
held,  as  between  the  creditor  and  the  estate  of  a  deceased  surety, 
that  the  joint  obligation  of  the  latter  ended  with  his  death.  We 
are  not  yet  prepared  to  decide  that  his  several  obligations,  orig- 
inating at  the  date  of  the  common  signature,  to  contribute  rata- 
bly  to  the  payments  compelled  from  his  associates,  also  terminates 
at  his  death.  In  Norton  v.  Coons  (3  Den.  130)  the  sureties 
were  all  living,  and  the  precise  question  did  not  arise,  but  it 
was  again  held  that,  while  contribution  between  sureties  was 
founded  on  a  general  principle  of  equity  and  justice,  yet  what 
had  been  an  equitable  had  become  a  legal  right,  and  that  in 
such  case  the  law  will,  for  all  the  purposes  of  a  remedy,  imply 
a  promise  of  payment.  In  the  case  of  Tobias  v.  Rogers  (13  N. 
Y.  66)  the  surety  was  held  not  liable  to  contribute  because  re- 
lieved in  his  life-time  from  all  liability,  either  as  obligor  or 
co-surety,  by  a  discharge  in  bankruptcy.  It  was  there  said  that 
the  defendants  in  the  replevin  suit  could  have  released  one  of 
the  sureties  with  the  assent  of  the  other,  and  that  to  the  act  of 
the  legislature,  providing  for  a  discharge  in  bankruptcy,  such 
other  surety  in  common  with  every  other  citizen,  is  presumed  to 
have  assented.  The  reasoning  has  no  application  to  the  case 
of  a  deceased  surety.  And  while  the  court  added  that  contribu- 
tion was  not  founded  upon  contract,  it  was  further  said  that  the 
law  following  equity  will  imply  a  promise  to  contribute  in  order 
to  afford  a  remedy.  The  justice  of  such  a  rule  is  apparent. 
Originating  in  equity,  at  has  been  grafted  upon  the  law  with  the 
aid  of  an  implied  promise  to  secure  the  legal  remedy.  We  see 
no  reason  to  reverse  it,  but  every  consideration  of  equity  and 
justice  leads  us  rather  to  maintain  and  enforce  it.  The  decision 
of  the  court  below  was,  therefore,  right. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur. 

Judgment  affirmed. 


JORDAN  v.  DOBBINS.  411 

JORDAN  v.  DOBBINS.     1877. 
122  Mass.  168;  23  Am.  Rep.  305. 

Contract  upon  the  following  guaranty:  "For  value  received, 
the  receipt  whereof  is  hereby  acknowledged,  the  undersigned 
does  hereby  guaranty  to  Jordan,  Marsh  &  Co.  the  prompt  pay- 
ment by  George  E.  Moore  to  Jordan,  Marsh  &  Co.,  at  maturity, 
of  all  sums  of  money  and  debts  which  he  may  hereafter  owe 
Jordan,  Marsh  &  Co.  for  merchandise,  which  they  may  from 
time  to  time  sell  to  him,  whether  such  debts  be  on  book  account, 
by  note,  draft  or  otherwise,  and  also  any  and  all  renewals  of 
any  such  debt.  The  undersigned  shall  not  be  compelled  to  pay 
on  this  guaranty  a  sum  exceeding  $1,000,  but  this  guaranty  shall 
be  a  continuing  guaranty,  and  apply  to  and  be  available  to  said 
Jordan,  Marsh  &  Co.,  for  all  sales  of  merchandise  they  may 
make  to  said  George  E.  Moore  until  written  notice  shall  have 
been  given  by  the  undersigned  to  said  Jordan,  Marsh  &  Co. 
and  received  by  them,  that  it  shall  not  apply  to  future  purchases. 
Notice  of  the  acceptance  of  this  guaranty  and  of  sales  under 
the  same,  and  demand  upon  said  George  E.  Moore  for  payment, 
and  notice  to  me  of  non-payment,  is  hereby  waived.  In  witness 
whereof,  I,  the  undersigned,  have  hereunto  set  my  hand  and 
seal  this  twenty-eighth  day  of  February,  A.  D.  1873.  William 
Dobbins.  (Seal.)  "  Annexed  to  the  declaration  was  an  account 
of  goods  sold  to  Moore. 

The  case  was  submitted  to  the  Superior  Court,  and,  after 
judgment  for  the  plaintiffs,  to  this  court,  on  appeal,  on  an  agreed 
statement  of  facts  in  substance  as  follows: 

The  plaintiffs  are  partners  under  the  firm  name  of  Jordan, 
Marsh  &  Co.,  and  the  defendant  is  the  duly  appointed  admin- 
istratrix of  the  estate  of  William  Dobbins. 

William  Dobbins,  on  February  28,  1873,  executed  and  deliv- 
ered to  the  plaintiffs  the  above  written  contract  of  guaranty. 
The  plaintiffs  thereafter,  relying  on  this  contract,  sold  to  said 
Moore  the  goods  mentioned  in  the  account  annexed  to  the 
declaration,  at  the  times  and  for  the  prices  given  in  said  ac- 
count, all  of  the  goods  having  been  sold  and  delivered  to  Moore 
between  January  16  and  May  28,  1874.  All  the  amounts  claimed 
were  due  from  Moore,  and  payment  was  duly  demanded  of  him 
and  of  the  defendant  before  the  date  of  the  writ.  Other  goods 


412  EFFECT  OF  DEATH  OF  SURETY. 

had  been  sold  by  the  plaintiffs  to  Moore  between  the  date  of 
the  guaranty  and  the  first  date  mentioned  in  the  account,  but 
these  had  been  paid  for. 

William  Dobbins  died  on  August  6,  1873,  and  the  defendant 
was  appointed  administratrix  of  his  estate  on  September  2,  1873. 
The  plaintiffs  had  no  notice  of  his  death  until  after  the  last  of 
the  goods  mentioned  in  the  account  had  been  sold  to  Moore. 

If  upon  these  facts  the  defendant  was  liable,  judgment  was 
to  be  entered  for  the  plaintiffs  for  the  amount  claimed;  other- 
wise, judgment  for  the  defendant. 

MORTON,  J.  An  agreement  to  guarantee  the  payment  by  an- 
other of  goods  to  be  sold  in  the  future,  not  founded  upon  any: 
present  consideration  passing  to  the  guarantor,  is  a  contract  of 
a  peculiar  character.  Until  it  is  acted  upon,  it  imposes  no  obliga- 
tion and  creates  no  liability  of  the  guarantor.  After  it  is  acted 
upon,  the  sale  of  the  goods  upon  the  credit  of  the  guaranty  is 
the  only  consideration  for  the  conditional  promise  of  the  guar- 
antor to  pay  for  them. 

The  agreement  which  the  guarantor  makes  with  the  person 
receiving  the  guaranty  is  not  that  I  now  become  liable  to  you 
for  anything,  but  that  if  you  sell  goods  to  a  third  person,  I 
will  then  become  liable  to  pay  for  them  if  such  third  person 
does  not.  It  is  of  the  nature  of  an  authority  to  sell  goods  upon 
the  credit  of  the  guarantor,  rather  than  of  a  contract  which 
cannot  be  rescinded  except  by  mutual  consent.  Thus  such  a 
guaranty  is  revocable  by  the  guarantor  at  any  time  before  it 
is  acted  upon. 

In  Offord  v.  Davies,  12  C.  B.  (N.  S.)  748,  the  guaranty  was 
of  the  due  payment  for  the  space  of  twelve  months  of  bills  to 
be  discounted,  and  the  court  held  that  the  guarantor  might 
revoke  it  at  any  time  within  the  twelve  months,  and  that  the 
plaintiff  could  not  recover  for  bills  discounted  after  such  revoca- 
tion. The  ground  of  the  decision  was  that  the  defendant's 
promise  by  itself  created  no  obligation,  but  was  in  the  nature 
of  a  proposal  which  might  be  revoked  at  any  time  before  it 
was  acted  on. 

Such  being  the  nature  of  a  guaranty,  we  are  of  opinion  that 
the  death  of  the  guarantor  operates  as  a  revocation  of  it,  and 
that  the  person  holding  it  cannot  recover  against  his  executor 
or  administrator  for  goods  sold  after  the  death.  Death  ter- 
minates the  power  of  the  deceased  to  act,  and  revokes  any  author- 


JORDAN  v.  DOBBINS.  413 

ity  or  license  he  may  have  given,  if  it  has  not  been  executed 
or  acted  upon.  His  estate  is  held  upon  any  contract  upon  which 
a  liability  exists  at  the  time  of  his  death,  although  it  may  de- 
pend upon  future  contingencies.  But  it  is  not  held  for  a  lia- 
bility which  is  created  after  his  death,  by  the  exercise  of  a 
power  or  authority  which  he  might  at  any  time  revoke. 

Applying  these  principles  to  the  case  at  bar,  it  follows  that 
the  defendant  is  entitled  to  judgment.  The  guaranty  is  care- 
fully drawn,  but  it  is  in  its  nature  nothing  more  than  a  simple 
guaranty  for  a  proposed  sale  of  goods.  The  provision,  that  it 
shall  continue  until  written  notice  is  given  by  the  guarantor 
that  it  shall  not  apply  to  future  purchases,  affects  the  mode  in 
which  the  guarantor  might  exercise  his  right  to  revoke  it,  but 
it  cannot  prevent  its  revocation  by  his  death.  The  fact  that 
the  instrument  is  under  seal  cannot  change  its  nature  or  con- 
struction. No  liability  existed  under  it  against  the  guarantor 
at  the  time  of  his  death,  but  the  goods  for  which  the  plaintiffs 
seek  to  recover  were  all  sold  afterwards. 

We  are  not  impressed  by  the  plaintiffs'  argument  that  it  is 
inequitable  to  throw  the  loss  upon  them.  It  is  no  hardship  to 
require  traders,  whose  business  it  is  to  deal  in  goods,  to  exercise 
diligence  so  far  as  to  ascertain  whether  a  person  upon  whose 
credit  they  are  selling  is  living. 

The  decision  in  Bradbury  v.  Morgan,  1  H.  &  C.  249,  upon 
which  the  plaintiffs  rely,  was  rested  upon  reasoning  which  ap- 
pears to  us  to  be  unsatisfactory  and  inconsistent  with  the  opinion 
of  the  same  court  a  year  before,  in  Westhead  v.  Sproson,  6  H. 
&  N.  728,  and  with  the  decision  in  Offord  v.  Davies,  ubi  supra, 
at  the  argument  of  which  Bradbury  v.  Morgan  was  cited;  and 
it  has  not  since  been  treated  as  settling  the  law  of  England. 
Harriss  v.  Fawcett,  L.  R.  15  Eq.  311,  and  L.  R.  8  Ch.  866.  The 
reasons  of  the  similar  decision  in  Bank  of  South  Carolina  v. 
Knotts,  10  Rich.  543,  are  open  to  the  same  objections. 

Judgment  for  the  defendant. 


414  EFFECT  OF  DEATH  OF  SURETY. 

GAY  v.  WARD.     1895. 
67  Conn.  147;   34  Atl.  Bep.  1025;  32  L.  R.  A.  818. 

The  facts  are  stated  in  the  opinion. 

WHEELER,  J.,  delivered  the  opinion  of  the  court: 

This  case  comes  before  us  for  our  advice  on  a  reservation 
upon  an  agreed  statement  of  facts,  and  with  a  stipulation,  en- 
tered into  by  all  the  parties  to  the  record,  that  all  questions 
arising  upon  the  pleadings  or  upon  the  agreed  facts  may  be 
finally  determined  by  this  court. 

On  January  8,  1872,  the  stockholders  of  the  Delaney  &  Mun- 
son  Manufacturing  Company,  located  at  Farmington,  Conn., 
executed  and  delivered  to  the  National  Exchange  Bank  of  Hart- 
ford a  contract  of  continuing  guaranty  in  the  form  of  a  bond, 
the  terms  of  which  appear  at  length  in  the  opinion  of  this  court 
in  the  case  of  National  Exch.  Bank  v.  Gay,  57  Conn.  224,  231, 
4  L.  R.  A.  343,  brought  against  one  of  the  guarantors  upon  the 
bond.  This  bond  guaranteed  to  the  bank  "the  full,  prompt,  and 
ultimate  payment"  of  all  commercial  paper  which  the  bank 

may  "have  discounted  or  may  hereafter  discount, 

to  an  amount  not  to  exceed  $15,000  in  all  at  any  one  time."  It 
provided  that,  upon  notice  to  the  bank  by  one  or  all  of  the 
guarantors  upon  such  instrument,  such  guarantor  or  guarantors 
should  not  be  holden  upon  said  bond  for  any  liability  created 
by  such  company  subsequent  to  the  giving  of  such  notice.  From 
the  date  of  the  bond,  to  February  9,  1888,  the  bank  discounted 
commercial  paper  of  said  company,  upon  which  date  the  com- 
pany failed.  On  January  21,  1889,  the  bank  recovered  judg- 
ment against  the  executors  of  Gay,  one  of  the  guarantors  upon 
the  bond,  for  the  sum  of  over  $11,000,  which  sum,  together  with 
the  expenses  of  the  suit,  the  executors  paid.  Subsequently,  Wads- 
worth,  another  guarantor  upon  the  bond,  voluntarily  paid  to  the 
executors  of  Gay  one  half  of  said  amounts.  The  present  action 
is  brought  by  the  executors  of  Gay  and  of  Wadsworth,  against 
the  administratrix  of  Augustus  Ward,  a  guarantor  upon  the 
bond;  William  Potts  administrator  upon  the  estate  of  Samuel 
S.  Cowles,  a  guarantor  upon  the  bond ;  Horace  Cowles,  a  son  of 
said  Samuel  S.  Cowles;  and  Mary  C.  Hardy,  a  purchaser  from 
a  distributee  of  the  estate  of  Horace  Cowles.  Said  Ward  died 
April  6,  1883.  His  estate  was  duly  settled,  and  distribution 


GAY  v.  WARD.  415 

made  December  8,  1883.  Said  Samuel  S.  Cowles  died  in  1873. 
His  estate  was  duly  settled  and  distribution  made  June  7,  1873 ; 
a  part  being  distributed  to  his  son,  Horace  Cowles,  who  died  in 
1876.  His  estate  was  duly  settled  and  distribution  made  Sep- 
tember 25,  1876.  A  part  of  the  estate  inherited  by  Horace 
Cowles  from  his  father,  Samuel  S.  Cowles,  was  purchased  by 
Mary  C.  Hardy  from  a  distributee  of  the  estate  of  Horace 
Cowles,  and  owned  by  her  when  she  was  made  a  party  to  this 
action.  All  of  the  discounts  existing  February  9,  1888,  which 
the  estate  of  Gay  and  Wadsworth  paid,  were  made  by  the  bank 
long  subsequent  to  the  death  of  Samuel  S.  Cowles,  and  none 
were  renewals  of  discounts  made  in  his  lifetime.  $5,000  of  said 
$11,000  were  discounts  made  by  the  bank  after  having  notice 
of  Ward's  death,  and  $6.000  of  said  $11,000  were  renewals  of 
paper  made  after  notice  of  "Ward 's  death,  but  of  paper  originally 
discounted  prior  to  "Ward's  death.  The  bank,  Gay,  and  Wads- 
worth  had  immediate  notice  of  the  death  of  said  Samuel  S. 
Cowles  and  of  Ward.  The  said  manufacturing  company  was 
solvent  at  the  time  of  the  death  of  said  Samuel  S.  Cowles  and  of 
Ward. 

The  stockholders  of  the  Delaney  &  Munson  Manufacturing 
Company,  by  pledging  their  individual  credit  to  the  National 
Exchange  Bank,  secured  funds,  through  discounts  made  by  the 
bank,  with  which  to  conduct  its  business.  ' '  To  avoid  the  incon- 
venience of  indorsements  by  several  individuals  upon  each  of  a 
large  number  of  original  notes  and  the  renewals  thereof,  the 
obligors  made  one  comprehensive  continuing  contract  of  indorse- 
ment in  the  form  of  a  guaranty  under  their  respective  hands 
and  seals."  National  Exch.  Bank  v.  Gay,  supra.  The  bond 
constituted  a  contract  of  continuing  guaranty,  upon  the  part  of 
its  obligors  or  guarantors,  of  payment  of  all  paper  discounted 
by  the  bank  up  to  the  limit  of  the  amount  named  in  the  bond. 
No  consideration  passed  at  the  execution  of  the  bond.  Each  dis- 
count, when  made  upon  the  credit  of  the  guaranty,  constituted 
a  consideration,  separable  and  divisible.  No  obligation  arose 
and  no  liability  was  created  until  a  discount  was  made  upon  the 
credit  of  the  guaranty.  The  bond  was  framed  to  meet  the  con- 
tingency of  the  long  continuation  of  discounts  by  the  bank,  and 
the  extension  and  renewal  of  discounts  made  upon  the  security 
of  its  guaranty.  Upon  the  nature  of  this  guaranty  this  court 
expressed  itself,  in  the  case  we  quoted  from  above,  as  follows: 


416  EFFECT  OF  DEATH  OF  SURETY. 

"To  guarantee  'full  and  prompt'  payment  would  meet  the  case 
of  a  note,  on  usual  bank  time,  actually  to  be  paid  in  full  at 
maturity.  To  guarantee,  in  addition  to  'full  and  prompt'  pay- 
ment, the  'ultimate'  payment,  can  have  no  other  meaning  than 
that  the  obligor  should  continue  bound  to  the  end  of  all  sub- 
stitutions, renewals,  and  extensions." 

The  bank  was  under  no  compulsion  to  discount  the  company's 
paper.  It  might,  at  its  option,  refuse  to  continue  discounting  it. 
When  it  made  the  discounts,  the  guaranty  of  the  bond  attached. 
Each  guarantor  upon  the  bond  might,  upon  notice  in  writing  to 
the  bank,  terminate  all  liability  thereafter  arising  under  the 
bond.  Unless  the  terms  of  the  guaranty  forbid,  the  law  writes 
in  the  contract  of  continuing  guaranty  a  like  power  to  revoke  the 
guaranty  upon  notice.  Coulthart  v.  Clementson,  L.  R.  5  Q.  B. 
Div.  42;  Jordan  v.  Dobbins  122  Mass.  168;  23  Am.  Eep.  305; 
Agawam  Bank  v.  Strever  18  N.  Y.  502.  The  effect  of  the  death 
of  a  guarantor  upon  a  continuing  guaranty  has  been  determined 
differently  in  different  jurisdictions.  In  Massachusetts,  death  is 
held  to  work  a  revocation  of  the  guaranty.  The  court,  in  con- 
struing a  continuing  guaranty  of  the  sale  of  goods,  in  the  case  of 
Jordan  v.  Dobbins,  supra,  said :  ' '  Death  terminates  the  power  of 
the  deceased  to  act,  and  revokes  any  authority  or  license  he  may 
have  given,  if  it  has  not  been  executed  or  acted  upon.  His  estate  is 
held  upon  any  contract  upon  which  a  liability  exists  at  the  time 
of  his  death,  although  it  may  depend  upon  future  contingencies. 
But  it  is  not  held  for  a  liability  which  is  created  after  his 
death,  by  the  exercise  of  a  power  or  authority  which  he  might  at 
any  time  revoke.  See  also  Hyland  v.  Habich,  150  Mass.  112; 
6  L.  R.  A  382.  In  England,  death  does  not  work  a  revocation 
of  the  continuing  guaranty.  The  case  of  Coulthart  v.  Clernent- 
son,  supra,  was  an  action  brought  by  a  bank  upon  a  continuing 
guaranty  against  the  executor  of  a  deceased  guarantor.  The  court 
said:  "A  guaranty  like  the  present  is  not  a  mere  mandate  or 
authority  revoked  ipso  facto  by  the  death  of  the  guarantor." 
These  two  cases  illustrate  the  two  views  held  by  courts  of  differ- 
ent jurisdictions.  We  prefer  to  adopt  the  latter  view.  To 
adopt  the  Massachusetts  doctrine  would  impose  upon  the  guar- 
antee the  burden  of  knowing  at  all  times  whether  or  not  the  guar- 
antors are  in  life.  There  could  be  no  safety  in  relying  upon  the 
credit  of  the  guarantor,  unless  at  the  moment  of  reliance  the 
guarantee  knew  the  guarantor  to  be  in  life.  The  practical  dif- 


GAY  v.   WARD.  417 

ficulties  in  the  way  of  a  guaranty  so  construed  would  prevent 
credit  being  given  upon  it,  and  curtail  a  useful  method  of  com- 
mercial business.  Further,  a  guaranty  of  this  nature  is  in- 
tended to  continue  until  revoked  by  act  of  the  parties  or  its 
equivalent.  But,  when  the  guarantee  has  knowledge  of  the  death 
of  the  guarantor,  such  knowledge  works  a  revocation  of  the 
guaranty.  The  guarantee  no  longer  relies  upon  the  credit  of 
the  deceased  guarantor.  Each  advance  made  by  the  guarantee 
constitutes  a  fresh  consideration,  and,  when  made,  an  irrevocable 
promise  or  guaranty  on  the  part  of  the  living  guarantors.  Each 
advance  thereafter  made  is  upon  the  credit  of  the  living  not  of 
the  dead  guarantor.  Were  this  not  so, — unless  it  be  held  that 
the  representatives  of  the  deceased  may  upon  notice  terminate 
the  guaranty, — the  guaranty,  terminable  at  the  option  of  the 
guarantor  during  life,  becomes  upon  his  death,  never  ending. 
The  limitation  which  the  law  gives  the  living  is  denied  the 
dead.  Estates  must  remain  unsettled,  devises  of  property  be 
withheld,  so  long  as  the  guaranty  may  last,  and  the  representa- 
tives of  the  deceased  guarantor  be  powerless  to  save  his  estate 
from  a  loss  which  neither  he  nor  they  authorized  or  received 
benefit  for.  Such  a  result  justifies  and  impels  a  court  in  reading 
into  the  guaranty  a  limitation  of  termination  of  the  guaranty, 
upon  notice  of  the  death  of  the  guarantor,  as  well  as  upon  notice 
from  the  living  guarantor.  Any  notice  of  death  which  brings 
that  fact  within  the  knowledge  of  the  guarantee  is  a  proper  and 
sufficient  notice.  In  the  case  of  Coulthart  v.  Clementson,  supra, 
the  court  said:  "It  is  now  established  by  authority  that  such 
continuing  guaranties  can  be  withdrawn  on  notice  during  the 
lifetime  of  the  guarantor,  and  a  limitation  to  that  effect  must  be 
read,  so  to  speak,  into  the  contract.  But  what  is  to  happen  on 
his  death?  Is  the  guaranty  irrevocable  and  to  go  on  forever? 
It  would  be  absurd  to  refuse  to  read  into  the  lines  of  the  con- 
tract in  order  to  protect  the  dead  man 's  estate,  a  limitation  which 
is  read  into  it  to  protect  him  while  he  is  alive.  .  .  .  But  if 
the  executor  has  no  option  of  the  sort,  then,  in  my  opinion,  the 
notice  of  the  death  of  the  testator  and  of  the  existence  of  a  will, 
is  constructive  notice  of  the  determination  as  to  future  advances 
of  the  guarantee.  The  bank  from  that  moment  are  aware  that 
the  person  who  could  during  his  lifetime  have  discontinued  the 
guaranty  by  notice  cannot  any  longer  be  a  giver  of  notices ;  that 
his  estate  has  passed  to  others,  who  have  trusts  to  fulfil,  and  it 

27 


418  EFFECT  OF  DEATH  OF  SURETY. 

is  easy  for  them  to  ascertain  what  those  trusts  are.  If  these 
trusts  do  not  enable  the  executor  to  continue  the  guaranty,  then 
the  bank  has  constructive  notice  that  the  guaranty  is  withdrawn." 
National  Eagle  Bank  v.  Hunt,  16  R.  L.  148 ;  Harriss  v.  Fawcett, 
L.  R.  15  Eq.  311.  The  authorities  uniformly  hold  either  that 
death,  ipso  facto,  or  notice  of  death,  revokes  a  continuing  guar- 
anty. The  fact  that  the  instrument  is  under  seal  cannot  change 
its  nature  or  construction.  Jordan  v.  Dobbins,  122  Mass.  168,  23 
Am.  Rep.  305 ;  Offord  v.  Davies,  12  C.  B.  N.  S.  748.  A  similar 
doctrine  holds  that  notice  of  the  dissolution  of  a  co-partnership 
revokes  a  continuing  guaranty  made  by  the  co-partnership.  City 
Nat.  Bank  v.  Phelps  86  N.  Y.  484. 

The  application  of  these  principles  to  the  case  in  hand  is  this : 
All  of  the  discounts  for  which  recovery  was  had  against  Gay's 
estate,  and  payment  made  by  Gay's  executors  and  Wadsworth, 
were  made  after  notice  of  the  death  of  Samuel  S.  Cowles.  His 
representatives  are  therefore  freed  from  all  liability  for  such 
discounts.  Liability,  if  any,  for  discounts  so  made  upon  the 
credit  of  the  guaranty,  could  only  accrue  against  the  estate  of 
Samuel  S.  Cowles,  and  could  in  no  view  of  the  case  be  main- 
tained against  the  estate  of  Horace  Cowles  or  Mary  Hardy.  Five 
thousand  dollars  of  the  said  discounts  were  made  after  notice 
of  the  death  of  Augustus  Ward.  His  representatives  are  there- 
fore freed  from  all  liability  for  such  discounts.  The  remaining 
discounts  ($6,000)  were  originally  made  before  the  death  of 
Augustus  Ward.  His  death,  with  notice,  did  not  relieve  his 
estate  from  liability  for  such  discounts.  For  all  discounts  made 
prior  to  his  death,  whether  original  discounts  or  renewals  or  ex- 
tensions thereof,  his  estate  is  liable  upon  his  death.  The  duty  of 
the  bank  upon  this  bond,  if  it  desired  to  hold  the  estate  of  Ward 
liable,  was  to  enforce  its  claim  upon  the  paper  existent  at  Ward 's 
.death,  against  his  estate.  Instead  of  this,  the  bank  renewed  and 
extended  its  discounts  taking  new  paper  for  the  old,  without  the 
knowledge  or  acquiescence  of  the  representatives  of  Ward. 
Thereafter  the  bank  must  look  to  the  remaining  guarantors  upon 
the  bond.  It  waived  its  right  to  enforce  payment  from  the 
estate  of  Ward  when  it  accepted  paper  in  renewal  of  the  old. 
Each  renewal  so  made  had,  for  its  security,  the  guaranty  of  the 
living  guarantors  upon  the  bond,  who  had  not  notified  the 
bank  of  the  termination  of  their  liability  upon  the  guaranty. 

The  conclusion  arrived  at  is  just  to  the  bank,  for  it  can  cease, 


GAY   v.   WARD.  419 

upon  notice  of  the  death  of  a  guarantor,  to  renew  paper  then  dis- 
counted, and  can  enforce  its  payment  against  the  estate  of  the 
deceased  guarantor.  It  is  just  to  the  remaining  guarantors,  who 
can,  upon  notice  of  the  death  of  a  guarantor,  terminate  their 
liability,  and,  if  compelled  to  pay  that  liability,  by  appropriate 
remedy  compel  the  estate  of  the  deceased  guarantor  to  contribute 
his  proportion  to  the  liability  incurred.  For  all  liability  arising 
before  notice  of  the  death  of  the  guarantor,  the  remaining  guar- 
antors, can  provide  by  the  terms  of  the  guaranty.  In  the  case 
at  hand  all  the  guarantors  upon  this  bond  had  notice  of  the 
death  of  both  Samuel  S.  Cowles  and  Augustus  Ward,  and  made 
no  attempt  to  terminate  their  liability  upon  the  bond,  and  no 
effort  to  compel  the  estate  of  either  to  help  meet  the  liability 
existing,  but  thereafter,  without  the  knowledge,  consent, 
or  acquiescence  of  the  representatives  of  Cowles  or  "Ward,  re- 
newed the  old  paper  through  a  long  series  of  years,  and  increased 
their  own  liability  by  fresh  discounts.  A  renewal  of  paper  made 
before  the  death  of  a  guarantor,  upon  the  credit  of  a  bond  guar- 
anteeing payment  of  such  paper,  made  after  notice  of  said  death 
to  the  guarantee,  terminates  the  liability  of  such  guarantor  after 
said  notice.  The  precise  question  at  issue  was  determined  in  ac- 
cordance with  the  conclusions  we  reach,  in  the  case  of  National 
Eagle  Bank  v.  Hunt,  16  R.  I.  148,  153.  In  its  opinion,  the  court 
said:  "The  guarantees  in  the  case  at  bar  come  within  the 
second  class  above  considered.  They  were  therefore,  upon  the 
authorities  cited,  terminated  by  the  death  of  the  guarantor,  and 
notice  of  it  to  the  plaintiff,  as  to  all  subsequent  transactions. 
As,  however,  the  note  described  in  the  declaration  had  been  dis- 
counted, and  the  net  proceeds  had  been  paid  to  the  maker  prior 
to  the  death  of  the  guarantor,  the  plaintiff  would  have  been  en- 
titled to  recover  but  for  the  fact,  set  up  in  the  pleas,  that,  after 
notice  of  the  death  of  the  guarantor,  it  extended  the  time  of 
payment  for  a  further  period,  by  taking  a  new  note  from  the 
principal  debtor,  and  receiving  the  interest  thereon  in  advance, 
without  the  consent  of  the  defendant,  and  without  any  reserva- 
tion of  his  right,  assented  to  by  the  principal,  to  insist  upon  im- 
mediate payment  by  the  principal,  and,  in  default  of  such  pay- 
ment, to  pay  the  debt  himself,  and  proceed  at  once  against  the 
principal.  That  such  action  on  the  part  of  the  plaintiff  was 
sufficient  to  release  the  estate  of  the  guarantor,  and  the  defend- 


420  EFFECT  OF  DEATH  OF  SURETY. 

ant,  as  his  representative,  from  liability,  is  too  well  established  to 
need  the  citation  of  authority." 

The  question  whether  a  guaranty  will  be  revoked  by  notice  of 
death,  when,  by  the  terms  of  the  guaranty,  the  guarantor  could 
not  in  life  have  revoked  the  guaranty,  is  not  before  us,  and  we 
express  no  opinion  upon  this  point. 

The  claim  that,  because  the  bond  of  guaranty  in  this  case 
bound  the  guarantors  to  the  "full,  prompt,  and  ultimate  pay- 
ment" of  all  paper  discounted  after  the  execution  of  such  bond, 
therefore  the  guaranty  covers  discounts  made  before  the  death, 
and  the  renewals  of  such  discounts  made  after  the  death  of  the 
guarantor,  cannot  be  sustained.  The  guaranty  here  applies  to 
paper  discounted,  and  to  the  renewal  or  extension  of  such  dis- 
counts, before  the  decease  of  a  guarantor ;  otherwise,  a  continuing 
liability  existed  against  the  estate  of  the  deceased  guarantor  so 
long  as.  the  renewals  were  made.  Such  a  result  was  not  intended 
by  the  parties  to  the  bond.  They  did  not  intend  to  continue  a 
liability  after  the  death  of  a  guarantor,  for  an  indefinite  period, 
which  he  and  they  could  terminate  at  any  time  during  his 
life.  A  contract  of  guaranty  is  to  be  construed  so  as  to  promote 
the  use  and  convenience  of  commercial  intercourse.  Davis  v. 
Wells,  F.  &  Co.  104  U.  S.  159,  169,  26  L.  ed.  686,  690.  And 
its  language  is  not  to  be  extended  by  any  strained  construction, 
'for  the  purpose  of  enlarging  the  guarantor's  liability  (Hall  v. 
Band,  8  Conn.  560  573)  ;  but  its  construction  is  to  be  according 
to  what  is  fairly  to  be  presumed  to  have  been  the  understanding 
of  the  parties,  without  any  strict  technical  nicety  (Lee  v.  Dick, 
35  U.  S.  10  Pet.  482,  493,  9  L.  ed.  503,  507 ;  Evansville  Nat.  Bank 
v.  Kaufmann,  93  N.  Y.  273,  281,  45  Am.  Kep.  204).  These  estab- 
lished rules  of  construction  accord  with  the  construction  we  give 
to  the  guaranty  before  us. 

We  deem  it  unnecessary  to  discuss  other  questions  argued  be- 
fore us,  since  the  questions  considered  are  decisive  of  the  case. 
We  have  not  overlooked  the  fact  that  there  has  been  a  misjoinder 
of  parties  defendant.  The  estate  of  Horace  Cowles  and  Mary 
Hardy  were  strangers  to  the  guaranty.  The  representatives  of 
Samuel  S.  Cowles  are  alone  liable  upon  his  obligations.  There  is, 
as  well,  a  misjoinder  of  parties  plaintiff.  Mr.  Wadsworth  volun- 
tarily paid  one  half  of  the  amount  recovered  against  the  estate 
of  Gay.  He  cannot  now  maintain,  with  Gay's  representatives, 


ROYAL  INS.  CO.  v.  DAVIES.  421 

an  action  to  compel  payment  to  them  of  the  share  of  other  guar- 
antors paid  by  him  for  them. 

The  Superior  Court  is  advised  to  render  judgment  in  favor 
of  the  defendants. 

The  other  Judges  concur. 


c.  Liability  on  a  bond  for  faithful  performance  of  duty  is  not 
terminated  by  death  of  surety. 

THE  ROYAL  INSURANCE  COMPANY  v.  DAVIES.     1875. 
40  Iowa,  469;  20  Am.  Rep.  561. 

The  plaintiff's  petition  states  that  on  or  about  January  26th, 
1872,  W.  F.  Kidder,  as  principal,  and  John  L.  Davies,  as  surety 
executed  and  delivered  to  the  plaintiff  their  bond  as  follows: 

''Know  all  men  by  these  presents,  that  I,  William  F.  Kidder, 
of  the  town  of  Davenport,  County  of  Scott,  State  of  Iowa,  as 
principal,  and  John  L.  Davies,  of  the  town  of  Davenport,  County 
of  Scott,  State  of  Iowa,  as  surety,  are  held  and  firmly  bound 
unto  the  Royal  Insurance  Company  of  Liverpool,  a  corporation 
authorized  by  act  of  Parliament,  and  located  at  Liverpool,  Eng- 
land, in  the  sum  of  one  thousand  dollars  to  be  paid  unto  the 
company,  their  certain  attorneys  or  assigns,  to  which  payment 
well  and  truly  to  be  made,  we  jointly  and  severally,  bind  our- 
selves, our  heirs,  executors  and  administrators,  jointly  and  sev- 
erally by  these  presents. 

Sealed  with  our  seals  and  subscribed  'at  Davenport,  Iowa,  this 
26th  day  of  January,  1872. 

The  conditions  of  this  obligation  is  such,  that  whereas  the 
above  named  W.  F.  Kidder  has  been  appointed  by  the  aforesaid 
company  their  agent  for  the  City  of  Davenport,  County  of  Scott, 
and  State  of  Iowa,  during  the  pleasure  of  the  manager  and  at- 
torney thereof,  by  reason  whereof,  and  as  such  agent  he  will 
receive  into  his  hands  and  possession  divers  sums  of  money, 
policies,  chattels  and  other  effects,  the  property  of  said  company, 
and  is  bound  to  keep  true  and  accurate  accounts  of  said  property 
and  of  receipts  and  disbursements  and  to  deliver,  account  for, 
and  pay  over  the  same  when  demanded  and  directed  according 
to  the  instructions  of  the  directors  of  said  company. 

Now,  therefore,  if  the  said  W.  F.  Kidder  shall  promptly  pay 
to  the  said  company  the  amounts  received  from  time  to  time,  and 


422  EFFECT  OF  DEATH  OF  SURETY. 

shall  well  and  truly  perform  all  and  singular  the  duties  as  agent 
of  said  company,  as  directed^  according  to  the  provisions  of  the 
charter,  by-laws,  rules  and  regulations  of  said  company  now 
existing,  or  which  may  be  adopted  by  said  company,  for  and 
during  the  time  he  officiates  as  said  agent,  and  shall  deliver 
all  the  property  which  he  may  receive  and  hold  as  said  agent,  to 
his  successor  in  office,  or  to  such  other  person  as  the  said  com- 
pany, or  its  authorized  officers  may  direct,  then  this  obligation 
shall  be  null  and  void,  otherwise  remain  in  full  force  and  virtue. 
(Signed.)  W.  E.  KIDDER,  (Seal.) 

JOHN  L.  DAVIES,  (Seal.) 

Signed,  sealed  and  delivered  in  presence  of     H.  Goodrich." 

It  is  further  alleged  that  Kidder  was  duly  appointed  agent  of 
plaintiff  January  26th,  1872,  and  continued  to  act  until  his 
death,  December  19th,  1872 ;  that  at  the  time  of  his  death  he  was 
indebted  to  the  plaintiff  in  the  sum  of  $v219.58,  for  premiums 
collected  by  him  in  October,  1872,  and  that  plaintiff  has  expended 
$11.50  in  an  effort  to  collect  said  sum  from  the  estate  of  said 
Kidder. 

The  defendant  answered  admitting  substantially  the  allega- 
tions of  the  petition,  and  alleging  as  an  affirmative  defense 
thereto,  that  John  L.  Davies,  the  surety  died  on  the  23d  day  of 
April,  1872;  that  thereby  his  estate  was  discharged  from  any 
further  liability  on  said  bond,  and  that  up  to  the  time  of  his 
decease  the  conditions  of  said  bond  had  not  been  broken,  but  that 
the  breaches  thereof  alleged  in  the  petition,  happened  after  the 
death  of  said  Davies. 

To  this  answer  the  plaintiff  demurred,  which  being  overruled 
and  plaintiff  standing  thereon,  judgment  was  rendered  for  de- 
fendant. Plaintiff  appeals. 

MILLER,  Ch.  J.  The  question  presented  in  the  record  is 
whether  the  death  of  Davies,  the  surety  in  the  bond,  operated  in 
law  as  a  discharge  of  his  estate  from  liability  for  the  default  of 
the  principal,  happening  after  the  death  of  the  surety.  In  other 
words,  whether  the  death  of  the  surety  operated  to  terminate  the 
obligation  assumed  by  him  when  he  executed  the  bond  on  his 
part.  It  is  not  claimed  on  the  part  of  the  defendant  that  the 
liability  of  the  surety,  or  his  obligation  as  such,  was  terminated 
by  reason  of  any  act,  or  omission  of  the  plaintiff,  but  it  is  claimed 
that  the  obligation  of  the  surety  ceased  and  the  bond  became  de- 
funct, as  to  every  act  done  after  the  death  of  the  surety 


ROYAL  INS.  CO.  v.  DAVIES.  423 

by  reason  of  such  death  alone.  By  the  terms  of  the  bond  the 
surety,  Davies,  bound  himself,  his  "heirs,  executors  and  admin- 
istrators," as  surety  for  his  principal,  Kidder.  This  language 
shows  no  intention  to  limit  the  liability  to  the  lifetime  of  the 
surety;  on  the  contrary  it  imports  that  the  liability  shall  con- 
tinue after  his  death,  and  bind  his  heirs  and  personal  representa- 
tives. This  intention  is  further  manifested  by  the  subsequent 
language  of  the  bond,  in  defining  more  particularly  the  obliga- 
tion assumed  by  the  obligors  therein.  It  is,  that,  "if  the  said 
"W.  F.  Kidder  shall  promptly  pay  to  the  said  company  the 
amounts  received  from  time  to  time,  and  shall  well  and  truly 
perform  all,  and  singular  the  duties  as  agent  of  said  company, 
as  directed,  according  to  the  provisions  of  the  charter,  by-laws, 
rules  and  regulations  of  said  company  now  existing,  or  which 
may  be  adopted  by  said  company,  for  and  during  the  tune  he 
officiated  as  said  agent,  then  this  obligation  shall  be  null  and 
void,  otherwise  remain  in  full  force  and  virtue. ' '  This  language 
clearly  shows  that  the  obligation  of  the  sureties  to  the  bond  was 
to  continue  for  and  during  the  time  Kidder,  the  principal,  should 
officiate  as  agent  of  the  company.  Of  course  the  death  of  Kidder 
would  terminate  the  obligation  of  the  sureties,  for  thereby  the 
agency  of  Kidder  would  terminate.  The  terms  of  the  bond  con- 
tinue the  liability  of  the  sureties  as  long  as  Kidder  should  act  as 
agent  of  the  company  and  this  liability  likewise  by  the  terms  of 
the  bond,  extends  to  the  heirs  and  legal  representatives  of  the 
sureties.  They  are  bound  by  as  clear  and  unmistakable  language 
as  that  which  binds  the  sureties  personally.  Instead  of  there 
being  any  intent  manifested  to  limit  the  obligation  of  the  sureties 
to  the  terms  of  their  respective  lives,  it  is  clearly  shown  that  it 
was  intended  the  obligation  should  extend  to,  and  bind  the  heirs 
and  personal  representatives  of  the  sureties,  and  that  the  binding 
force  of  the  bond,  and  the  sureties'  liability  should  continue  as 
long  as  Kidder  should  act  as  the  agent  of  the  company. 

No  case  exactly  in  point  has  been  cited  by  appellant,  and  no 
authority  whatever  is  cited  by  appellee.  We  are  clear,  however, 
that  upon  the  general  principles  regulating  contract,  and  the 
terms  of  the  bond  in  this  case  the  death  of  the  surety,  Davies,  did 
not  terminate  the  binding  force  of  the  bond  upon  his  heirs  and 
legal  representatives  for  the  failure  of  Kidder,  while  he  was 
agent  of  the  plaintiff,  to  pay  over  money  .coming  into  his  hands 


424  EFFECT  OF  DEATH  OF  SURETY. 

as  such  agent.     The  case  of  Gordon  v.  Calvert,  4  Russ.  581,  cited 
by  appellant  supports  the  view  we  have  here  taken. 

The  court  erred  in  overruling  the  plaintiff's  demurrer  to  the 
answer. 

Reversed. 


ESTATE  OF  KAPP  v.  PHOENIX  INS.  CO.     1885. 
113  III.  390;  55  Am.  Rep.  427. 

Action  on  a  bond.  The  opinion  states  the  case.  The  plaintiff 
had  judgment  below. 

MULKEY,  J.  It  is  contended  by  appellant  that  the  bond  in 
question  is  in  legal  effect  the  same  as  a  guaranty  of  future  ad- 
vances to  the  extent  of  $1,000 ;  that  it  did  not  become  binding  or 
operative  upon  the  makers  until  money  or  other  property  belong- 
ing to  the  company  came  into  the  hands  of  J.  B.  Booker  &  Co. 
as  its  agents;  that  money  or  property  thus  coming  into  their 
hands  is  to  be  regarded  in  the  nature  of  future  advances,  and 
to  be  governed  by  the  same  rules  of  law  that  <are  applicable  to 
such  advances;  that  the  contract  being  indefinite  as  to  its  dura- 
tion, either  party  had  the  right  to  terminate  it  on  notice ;  that  it 
existed,  so  to  speak,  by  the  continued  desire  or  joint  will  of  the 
parties,  <and  as  this,  in  the  nature  of  things  could  not  extend 
beyond  their  joint  lives,  and  as  Rapp  could  not,  after  his  de- 
cease, terminate  the  contract  by  notice,  the  law  itself  terminated 
it,  and  hence  Rapp's  estate  is  not  bound  for  any  thing  that 
occurred  after  his  death.  Such  is  the  position  of  appellant,  as 
we  understand  it. 

The  bond  in  question  is  something  more  than  an  ordinary  con- 
tract of  guaranty.  It  is  a  joint  and  several  contract  between 
Joseph  H.  Booker,  Albert  H.  Brace  and  M.  Rapp,  on  the  one 
side,  and  appellee  on  the  other.  The  contract  discloses  upon 
its  face  that  Booker  and  Brace,  under  the  style  of  J.  B.  Booker 
&  Co.,  has  been  appointed  agents  of  appellee  in  conducting  the 
insurance  business,  and  that  by  virtue  of  their  appointment,  and 
the  service  upon  which  they  had  or  were  then  about  to  enter, 
certain  moneys,  chattels  and  effects  would  come  into  their  hands, 
which  of  itself  disclosed  a  sufficient  consideration  to  support  the 


BAPP  v.  PHOENIX  INS.  CO.  425 

undertaking  of  the  obligors  so  long  as  the  agency  continued. 
The  contract  therefore  became  binding  immediately  upon  the 
execution  of  the  instrument,  and  had  a  default  on  the  part  of 
the  agents  occurred  in  the  lifetime  of  Rapp,  there  is  no  question 
but  that  a  joint  action  might  have  been  maintained  on  the  bond 
against  all  three  of  the  obligors.  The  instrument  then  was  a 
written  contract,  whereby  the  obligors,  jointly  and  severally, 
bound  themselves,  their  executors  and  administrators,  to  the  ex- 
tent of  $1,000,  for  the  faithful  discharge  of  the  duties  of  two 
of  them  in  a  certain  specified  business  of  a  confidential  character. 
Two  of  the  obligors  stipulate  for  their  own  honesty  and  business 
fidelity;  the  other  joins  in  the  stipulation,  and  also  individually 
guarantees  the  same  thing.  It  is  to  be  observed  that  unlike 
an  ordinary  continuing  guaranty,  as  it  is  claimed  this  is,  nothing 
is  to  be  done  by  any  of  the  parties  to  the  instrument  to  give  it 
effect  or  make  it  binding  upon  them,  as  is  always  the  case  where 
the  payment  of  future  advances  merely  is  guaranteed.  The  dif- 
ference between  the  two  cases  is  well  illustrated  by  the  language 
of  the  court  in  Jordan  v.  Dobbins,  122  Mass.  168 ;  s.  c.  23  Am. 
Eep.  305,  cited  and  relied  on  in  appellant's  brief.  In  that  case 
the  goods  sued  for  were  sold  after  the  guarantor's  death,  and 
the  court  in  holding  there  could  be  no  recovery,  among  other 
things  said:  "An  agreement  to  guarantee  the  payment  by 
another  of  goods  to  be  sold  in  the  future,  not  founded  upon  any 
present  consideration  passing  to  the  guarantor,  is  a  contract  of  a 
peculiar  character.  Until  acted  upon  it  imposes  no  obligation, 
and  creates  no  liability  of  the  guarantor.  After  it  is  acted  upon, 
the  sale  of  the  goods  upon  the  credit  of  the  guaranty  is  the  only 
consideration  for  the  conditional  promise  of  the  guarantor  to 
pay  for  them.  It  is  in  the  nature  of  an  authority  to  sell  goods 
upon  the  credit  of  the  guarantor,  rather  than  a  contract  which 
cannot  be  rescinded  except  by  mutual  consent.  Thus  such  a 
guaranty  is  revocable  by  the  guarantor  at  any  time  before  it  is 
acted  upon.  Such  being  the  nature  of  the  guaranty,  we  are 
of  opinion  that  the  death  of  the  guarantor  operates  as  a  revoca- 
tion of  it,  and  that  the  person  holding  it  cannot  recover  against 
his  executor  for  goods  sold  after  the  death. ' ' 

Without  expressing  any  opinion  for  the  present  in  respect  to 
the  conclusion  reached  in  that  case,  we  fully  concur  in  the  gen- 
eral expressions  of  the  court  with  regard  to  the  peculiar  character 
of  a  continuing  guaranty  where  it  is  supported  by  no  considera- 


426  EFFECT  OF  DEATH  OF  SURETY. 

tion  other  than  advances  to  be  made  at  a  future  day,  and  where 
the  party  to  whom  the  guaranty  is  given  assumes  no  obligation 
to  make  such  advances,  as  is  generally  the  case  with  such  guar- 
anties. But  the  transaction  now  under  consideration  can  hardly 
be  said  to  be  a  guaranty  of  this  character.  Taking  a  common- 
sense  business  view  of  the  matter,  the  giving  of  the  bond  and  its 
acceptance  by  the  company  were  the  final  acts  by  which  Booker 
&  Brace  were  clothed  with  authority  to  open  an  insurance  office 
at  Jacksonville  in  the  name  and  on  behalf  of  the  company.  And 
there  can  be  no  doubt  but  that  the  intrusting  them  with  its  busi- 
ness, and  permitting  them  to  conduct  it  with  the  public  in  the 
company's  name,  was  a  sufficient  consideration,  independent  of 
the  fact  the  instrument  was  under  seal,  to  support  the  agree- 
ment in  question.  In  these  respects  the  Dobbins  case  is  wholly 
unlike  the  one  in  hand.  In  this  case  no  additional  act  was  to  be 
done  by  appellee,  or  any  one  else,  to  give  the  bond  effect.  Busi- 
ness was  commenced  and  continued  under  it  for  a  long  time 
satisfactorily  to  all  parties.  Even  according  to  the  rule  ap- 
plicable to  continuing  guaranties,  strictly  so-called,  the  bond 
under  consideration  was  in  full  force  and  effect  long  before 
Eapp's  death.  We  have  looked  with  considerable  care  to  see  if 
the  general  principles  applicable  to  a  continuing  guaranty  of 
the  kind  mentioned  have  ever  been  extended  to  an  ordinary 
agent's  bond,  as  is  sought  to  be  done  here,  and  we  have  wholly 
failed  to  find  any  authority  for  it,  and  certainly  none  has  been 
cited. 

Considerable  space  in  appellant's  brief  is  occupied  in  an 
effort  to  show  that  Eapp's  liability  upon  the  bond  could  have 
been  terminated  at  any  time  before  his  death  by  his  giving  the 
company  notice  to  that  effect.  "Whether  his  liability  could 
have  been  thus  terminated  in  his  life-time,  or  whether  his  execu- 
tors might  in  this  manner  have  terminated  it  after  his  decease, 
are  questions  which  do  not  directly  arise  on  this  record,  as  it 
is  not  pretended  any  such  notice  was  given,  either  before  or  after 
his  death.  But  as  these  questions  probably  have  more  or  less 
bearing  upon  the  main  question  in  the  case,  presently  to  be 
stated,  they  may  be  incidentally  noticed  further  on. 

The  controlling  question  in  the  case  is,  whether  upon  Rapp's 
death  the  bond  in  question,  by  the  operation  of  law,  ceased  to 
have  any  legal  effect  as  to  subsequent  transactions  between  the 
company  and  its  agents,  J.  B.  Booker  &  Co.  It  is  a  familiar  rule 


RAPP  v.  PHOENIX  INS.  CO.  427 

of  law  that  requires  no  citation  of  authority  for  its  support,  that 
the  death  of  the  principal  is  per  se  a  revocation  of  the  agent's 
authority,  and  hence  all  contracts  or  other  engagements  subse- 
quently entered  into  by  the  latter,  on  behalf  of  the  principal,  are 
absolutely  void  as  to  his  legal  representatives,  and  this  notwith- 
standing the  death  of  the  principal  was  unknown  at  the  time 
such  contracts  or  other  engagements  were  entered  into.  On  the 
other  hand,  the  general  rule  unquestionably  is  that  all  contracts 
entered  into  by  one,  not  of  a  personal  character,  are  equally 
binding  upon  himself  and  his  legal  representatives  after  his  de- 
cease. This  general  rule  is  well  stated  in  Chitty  .on  Contracts 
(10th  Am.  ed.),  page  101.  The  author  says :  "It  is  a  presump- 
tion that  the  parties  to  a  contract  bind  not  only  themselves,  but 
their  personal  representatives.  Executors  therefore  are  held  to 
be  liable  on  all  contracts  of  the  testator  which  are  broken  in  his 
life-time,  and  with  the  exception  of  contracts  in  which  personal 
skill  or  taste  is  required,  on  all  such  contracts  broken  after  his 
death ;  and  such  parties  may  likewise  sue  on  a  contract,  although 
they  be  not  named  therein. ' '  In  the  present  case  however  Rapp, 
as  we  have  already  seen,  expressly  binds  his  executors  and  ad- 
ministrators, and  hence  no  question  of  presumption  of  liability 
can  arise,  so  far  as  Rapp's  legal  representatives  are  concerned, 
for  if  it  be  possible  to  bind  them  by  any  terms,  they  are  certainly 
bound. 

Appellant  contends,  however,  as  the  bond  is  nothing  more 
than  an  ordinary  continuing  guaranty,  without  limitation  as  to 
time,  and  could  not  for  that  reason  have  extended  in  any  event 
beyond  the  guarantor's  life,  the  provision  expressly  binding  his 
personal  representatives  must  have  been  intended  to  apply  only 
to  such  defaults  as  might  occur  during  his  life-time.  For  rea- 
sons already  appearing,  and  others  hereafter  to  be  stated,  we  do 
not  think  this  view  is  sound.  In  support  of  the  proposition  that 
the  bond  in  question  ceased  to  have  any  legal  effect  or  binding 
force  upon  the  death  of  Rapp,  as  to  all  subsequent  transaction, 
four  cases  are  cited  and  relied  on,  namely,  Pratt  v.  Trustees, 
etc.,  93  111.  475 ;  Jeudevine  v.  Rose,  36  Mich.  54 ;  Harris  v.  Faw- 
cett  L.  R.  15  Eq.  Gas.  311,  and  Jordan  v.  Dobbins,  already- 
referred  to. 

The  principle  applied  to  the  Pratt  case,  and  upon  which  it 
was  decided,  is  the  well-recognized  doctrine  that  a  mere  volun- 
tary proposition  may  be  withdrawn  at  any;  time  before  such 


428  EFFECT  OF  DEATH  OF  SURETY. 

action  is  taken  under  it  as  will  in  law  show  not  only  its  accept- 
ance, but  also  a  sufficient  consideration  to  sustain  it  as  a  con- 
tract. In  every  case  of  a  mere  voluntary  proposition,  if  the 
party  making  it  die  before  any  action  has  been  taken  under  it, 
his  death  will  in  law  operate  as  a  withdrawal  of  the  proposition, 
consequently  it  cannot  be  accepted  or  acted  upon  afterward  so 
as  to  bind  his  estate.  The  principle  here  stated,  and  which  was 
applied  to  the  Pratt  case,  we  do  not  think  has  any  application 
to  this  one. 

Jeudevine  v.  Hose,  supra,  in  some  of  its  features  is  much  like 
the  case  before  us.  In  that,  as  in  this,  the  action  was  upon  a 
bond,  which  like  the  present  case,  was  founded  upon  a  sufficient 
present  consideration,  and  related  to  a  contemporaneous  con- 
tract of  indefinite  duration,  which  was  subject  to  be  abrogated 
by  either  of  the  parties  to  it  and  of  course  upon  such  abrogation 
the  bond  itself  would  have  become  functus  officio.  Here  the 
resemblance  between  the  two  cases  ceases.  The  bond  in  that  case 
was  a  guaranty  of  future  sales;  in  this  case  it  is  a  guaranty  of 
the  honesty  and  fidelity  of  particular  persons  in  a  specified  busi- 
ness. In  that  the  money  sought  to  be  recovered  was  the  price 
of  goods  sold  after  the  obligee  in  the  bond  had  -been  expressly 
notified  not  to  make  any  further  sales  on  the  faith  of  the  defend- 
ant's guaranty.  In  this  case,  neither  Eapp,  in  his  life-time, 
nor  his  executors,  after  his  decease,  gave  any  such  notice.  It  will 
be  thus  seen  the  two  cases  differ  materially  in  a  number  of 
importance  particulars,  so  that  there  is  no  ground  for  the  claim 
that  that  case  controls  this.  The  actual  point  decided  in  the 
Michigan  case  is,  that  the  surety  (the  obligor  in  the  bond) 
had  the  right  to  terminate  his  liability  upon  it  by  giving  notice, 
as  he  did.  This  certainly  falls  far  short  of  sustaining  the  posi- 
tion that  a  liability  of  that  character  is  determined  by  death, 
without  such  notice. 

Harris  v.  Fawcett,  supra,  was  a  chancery  proceeding.  The 
guaranty  in  that  case  was  one  of  future  advances,  wherein  it 
was  expressly  provided  the  guaranty  should  continue  for  six 
months,  notice  in  writing,  under  the  hand  of  the  guarantor,  "to 
discontinue  the  same."  The  guarantor  died,  leaving  as  his  ex- 
ecutor the  debtor  on  whose  account  the  guaranty  had  been  given. 
It  was  known  to  the  creditor  having  the  guaranty,  there  was  no 
personal  estate  to  discharge  the  liability  of  the  deceased  upon  the 
guaranty,  nevertheless  they  continued  to  make  advances  to  the 


RAPP  v.  PHOENIX  INS.  CO.  429 

executor,  on  the  faith  of  it,  after  the  guarantor's  death.  This 
was  such  a  transaction  between  the  creditors  and  the  executor, 
who  was  acting  in  manifest  disregard  of  his  duty  to  the  estate, 
with  their  knowledge,  that  no  court  of  equity  ought  to  have  sus- 
tained it,  and  so  it  was  held.  In  that  case,  as  we  have  just 
seen,  the  right  to  terminate  the  contract  by  six  months'  notice 
was  expressly  reserved  in  the  contract  itself.  But  as  the  death 
of  the  guarantor  rendered  it  impossible  to  give  the  kind  of  a 
notice  provided  for,  namely,  a  notice  under  the  guarantor 's  own 
hand — a  fact  to  which  the  court  seems  to  have  attached  consid- 
erable importance — it  was  held,  as  the  contract  was  clearly  not 
intended  to  continue  forever,  the  estate  of  the  guarantor,  under 
the  circumstances,  was  not  bound  for  advances  made  after  his 
death.  The  case  however  is  not  an  authority  for  the  proposi- 
tion that  the  death  of  a  guarantor  in  a  case  like  the  present  is 
per  se  an  abrogation  of  the  contract.  On  the  contrary,  the  logic 
of  the  entire  reasoning  of  the  court  leads  irresistibly  to  the 
opposite  result.  In  the  present  case  there  is  no  provision  in  the 
contract  of  the  obligors  by  which  they  are  authorized  to  ter- 
minate their  liability  on  the  bond,  and  the  duration  of  their 
liability  is  therein  expressly  declared  to  be  during  the  time 
J.  B.  Booker  &  Co.  officiated  as  agents  of  the  insurance  com- 
pany, so  it  is  clear  the  contract  in  this  case  is  essentially  differ- 
ent from  the  one  in  that,  but  the  reasoning  in  that  case  as  just 
observed,  is  clearly  against  the  appellant  in  this. 

In  the  case  of  Jordan  v.  Dobbins,  supra,  the  action  was  brought 
on  a  continuing  guaranty  to  recover  the  price  of  goods  sold 
after  the  guarantor's  death,  and  it  was  held  there  could  be  no 
recovery,  on  the  ground  that  the  guarantor 's  death  terminated  the 
guaranty,  notwithstanding  it  was  unknown  at  the  time  the  goods 
were  sold.  In  thus  holding,  the  case  is  clearly  unsupported  by 
the  decided  weight  of  authority.  Chitty  Cont,  supra,;  Brandt 
Suretyship  113 ;  Green  v.  Young,  8  Greenl.  14 ;  s.  c.,  22  Am.  Dec. 
218 ;  Moore  v.  Wallis,  18  Ala.  458 ;  Royal  Ins.  Co.  v.  Davies,  40 
Iowa  469 ;  s.  c.,  20  Am.  Rep.  581 ;  Menard  v.  Scudder,  7  La.  Ann. 
385 ;  s.  c.,  56  Am.  Dec.  610.  If  as  contended  by  appellant,  there 
is  no  difference  in  principle  between  that  and  the  present  case, 
it  must  be  admitted  the  former  is  an  authority  directly  in  point 
sustaining  his  position ;  but  as  already  indicated,  we  think  there 
is  an  essential  difference  between  a  guaranty  of  future  advances, 
whether  in  the  form  of  bond  or  as  is  usually  the  case  of  a  mere 


430  EFFECT  OF  DEATH  OF  SURETY. 

stipulation,  and  a  bond  executed  by  an  agent  and  his  sureties 
for  the  faithful  discharge  of  the  former 's  duties  in  some  business 
or  employment,  as  was  the  case  here.  Such  a  bond  is  in  all 
its  essential  features  like  the  bond  of  an  executor,  guardian, 
trustee,  and  the  like.  The  only  difference  between  the  two  cases 
is,  that  most  of  these  bonds  are  required  to  be  taken  by  express 
statutory  provision.  But  this  only  relates  to  the  duty  of  giving 
such  a  bond.  It  does  not  change  its  scope,  character  or  legal 
effect  when  given.  All  voluntary  bonds  executed  for  a  lawful 
purpose,  like  statutory  bonds,  derive  whatever  efficacy  or  binding 
force  they  have,  from  the  positive  law  of  the  State,  and  in  this 
respect  there  is  no  difference  in  the  two  classes  of  bonds.  To  hold 
that  the  estate  of  a  surety  on  an  ordinary  trustee's  bond  is 
absolutely  discharged  from  all  future  liability  upon  the  death 
of  the  surety,  on  the  ground  that  his  death  is  per  se  an  extinguish- 
ment of  the  bond,  would  certainly  be  a  startling  proposition  to 
come  from  this  or  any  other  court  of  final  resort;  and  yet  to 
decide  this  case  in  conformity  with  appellant's  theory  would 
be  in  legal  effect,  to  assert,  as  we  understand  it,  that  very  pro- 
position. We  unhesitatingly  decline,  both  upon  reason  and  au- 
thority, to  give  our  adhesion  to  any  such  doctrine.  We  have  no 
doubt  of  the  correctness  of  the  ruling  of  the  trial  court  in 
allowing  appellee's  claim  to  the  extent  it  did. 

With  respect  to  the  question  raised  by  the  assignment  of  the 
cross-error,  but  little  need  be  said. 

We  are  of  opinion  the  court  also  ruled  properly  in  refusing 
to  allow  to  appellee  the  amount  of  deficit  for  the  month  of  Feb- 
ruary— not  on  the  ground  however  the  bond  had  become  functus 
officio  but  because  the  company,  in  retaining  in  its  service  J.  B. 
Booker  &  Co.  after  notice  of  the  January  default,  which  was 
just  cause  for  discharging  them,  violated  a  duty  which  it  im- 
pliedly  assumed  to  Rapp  and  his  legal  representative  on  accept- 
ing the  bond.  When  the  employer  of  a  clerk  or  other  agent  takes 
from  another  a  bond  of  indemnity  or  other  instrument,  guaran- 
teeing the  honesty  and  fidelity  of  such  clerk  or  agent  while  in 
the  service  of  the  employer,  the  latter  impliedly  stipulates  that 
he  will  not  knowingly  retain  such  clerk  or  agent  in  his  service 
after  a  breach  of  the  guaranty  justifying  his  discharge,  and  that 
in  the  event  he  does  so  without  the  surety's  consent,  it  is  to  be 
at  the  employer's  own  risk.  This  is  not  only  fair  dealing  and 
common  honesty,  but  it  is  a  rule  of  law  also.  The  principle 


LAUER  BREWING  CO.  V.  RILEY.  431 

here  announced  is  well  established  by  the  authorities.  Phillips 
v.  Foxall,  L.  E.  7  Q.  B.  666 ;  Anderson  v.  Aston,  L.  E.  8  Exch.  73. 
Holding,  as  we  do,  the  ruling  of  the  trial  court  was  correct 
in  allowing  the  claim  for  the  amount  it  did,  it  follows  the  ap- 
pellate court  properly  affirmed  the  order. 

DICKEY  and  CRAIG,  J.  J.,  dissented. 

Judgment  affirmed. 


CHAPTER  XV. 

FIDELITY  BONDS. 

a.  Concealment  by  the  obligee  of  facts  material  to  the  risk  will 
avoid  a  fidelity  bond. 

LAUEE  BEEWING  CO.  v.  EILEY.    1900. 
195  Pa.  St.  499;  46  Atl.  Rep.  71. 

1    Appeal  from  court  of  common  pleas,  Luzerne  county. 

Action  by  the  Lauer  Brewing  Company  against  Eobert  P. 
Eiley  and  others.  There  was  a  non-suit  as  to  certain  defendants, 
which  the  court  refused  to  take  off,  and  plaintiff  appeals.  Af- 
firmed. 

Per  Curiam.  The  only  question  raised  on  this  record  is  the 
refusal  of  the  court  below  to  take  off  the  compulsory  non-suit 
entered  as  to  the  defendants  Crossen  and  Carr.  As  to  them,  it 
appeared  by  the  plaintiff's  testimony  that,  at  the  time  they  be- 
came sureties  on  Eiley 's  bond  to  the  plaintiff,  Eiley,  the  principal 
in  the  bond,  was  a  defaulter,  and  a-  debtor,  as  such,  to  the  plain- 
tiff and  that  this  fact  was  withheld  from  the  sureties.  That  this 
was  a  good  defense  against  the  bond,  on  the  part  of  the  sureties, 
was  ruled  by  this  court  in  the  case  of  Wayne  v.  Bank,  52  Pa. 
St.  343.  Such  a  concealment  of  such  a  fact,  known  to  the 
obligee  at  the  -time  of  taking  the  bond,  as  was  the  fact  in  this 
case,  is  a  fraud  upon  the  sureties,  and  avoids  it,  as  to  them. 
The  rulings  in  Portner  v.  Kirschner,  169  Pa.  St.  472,  32  Atl.  442. 


432  FIDELITY  BONDS. 

and  Bank  v.  Braden,  145  Pa.  St.  473,  22  Atl.  1045,  are  not  upon 
this  point,  and  they  are  therefore  not  applicable. 

Judgment  affirmed, 
f 


LIEBERMAN  v.  FIRST  NATIONAL  BANK.    1900. 
2  Pennwill  (Del)  416;  45  Atl.  901;  82  Am.  St.  Eep.  414. 

Appeal  from  chancery  court. 

Bill  by  Nathan  Lieberman  against  the  First  National  Bank 
of  Wilmington.  From  a  decree  dissolving  a  preliminary  injunc- 
tion, complainant  appeals.  Affirmed. 

Argued  before  LORE,  C.  J.,  and  PENNEWILL.,  BOYCE,  and 
GRUB,  JJ. 

LORE,  C.  J.  Nathan  Lieberman,  the  appellant,  one  of  the 
sureties  of  two  official  bonds  of  Peter  T.  E.  Smith,  late  paying 
teller  of  the  First  National  Bank  of  Wilmington,  has  appealed 
in  this  case  from  the  decree  of  the  chancellor  made  December  3, 
1898,  which  dissolved  a  preliminary  injunction  granted  by  the 
late  Chancellor  Wolcott  November  6,  1893,  restraining  the  bank 
from  collecting  the  amount  of  certain  defalcations  of  Smith,  made 
by  him  while  acting  as  teller  of  the  said  bank.  The  bonds  bore 
date,  respectively,  November  1,  1879,  and  July  6,  1885.  Each 
bond  was  in  the  penal  sum  of  $15,000,  and  set  forth  that  said 
Smith  had  been  duly  elected  and  chosen  teller  of  the  bank  during 
the  pleasure  of  the  board  of  directors,  that  each  was  conditioned 
for  the  faithful  discharge  of  the  duties  of  his  office  as  teller  of 
the  said  bank.  Annexed  to  each  bond  was  a  joint  and  several 
warrant  of  attorney  to  enter  judgment  thereon.  During  the  life 
of  the  first  bond,  between  November  1,  1879,  and  July  6,  1885, 
Smith  fraudulently  abstracted  funds  of  the  bank  to  the  amount 
of  $11,650.  During  the  life  of  the  second  bond,  between  July  6, 
1885,  and  July  5,  1891,  he  so  abstracted  $27,750.  These  defalca- 
tions were  fraudulently  concealed  by  false  entries  made  by  Smith 
on  the  books  of  the  bank.  The  defalcations  were  discovered 
about  February  18,  1893,  and  a  full  confession  was  made  by 
Smith.  Upon  the  24th  day  of  February,  1893,  judgment  was 
entered  in  the  superior  court  of  the  State  of  Delaware  on  each 
of  said  bonds ;  said  judgments  being  No.  299  to  February  term, 
1893,  on  the  bond  of  November  1,  1879,  and  No.  301  to  the  said 
term  on  bond  of  July  6,  1885.  On  the  latter  judgment,  execu- 


LIEBERMAN  v.  FIRST  NAT.  BANK.  433 

tion  was  issued  October  19,  1893,  and  thereunder  the  goods  and 
chattels  of  Lieberman  were  taken  in  execution,  and  were  about 
to  be  advertised  and  sold,  when  further  proceedings  were  re- 
strained by  the  preliminary  injunction  of  November  6,  1893. 

The  chief  assignments  of  error  relied  on  and  urged  in  the 
brief  and  argument  in  behalf  of  the  appellant  were  (1)  that 
the  bonds  were  void  as  to  Lieberman  because  he  was  induced  to 
become  surety  thereon  by  fraudulent  representations  of  the  re- 
spondent; (2)  that,  at  the  time  of  the  entry  of  the  judgments, 
action  on  the  bonds  was  barred  by  the  statute  of  limitations. 

1.  The  appellant  contends  that  under  the  evidence  in  this  case 
there  is  clear  proof  that  immediately  before  complainant  became 
surety  on  the  bond  of  November  1,  1879,  he  had  a  conversation 
with  George  D.  Armstrong,  cashier  of  said  bank ;  that  Armstrong, 
then  told  him  that  he  would  run  no  risk  in  besoming  surety  for 
Smith,  as  he  was  ' '  a  good,  reliable,  honest  man,  and  his  accounts 
are  all  straight,  and  as  paying  teller  he  cannot  take  anything," 
and  that  he  had  read  the  published  statements  of  the  bank,  show- 
ing its  then  resources  and  liabilities;  that  immediately  before 
complainant  became  surety  on  the  bond  of  July  6,  1885,  he  had 
a  further  conversation  with  George  D.  Armstrong,  cashier  of  the 
bank;  that  Armstrong  then  told  him  that  Smith's  books  and 
everything  were  straight,  and  that  "there  was  no  risk  whatever 
in  going  on  his  bond  again ' ' ;  and  that  he  had  read  the  statements 
of  the  bank,  with  its  then  resources.  Complainant  avers  that  he 
was  induced  to  become  surety  for  Smith  because  of  such  state- 
ments made  to  him  by  the  cashier,  and  by  the  published  reports 
of  the  bank,  showing  its  resources  and  liabilities,  immediately"" 
belore  he  became  surety ;  that  these  reports  were  made,  and  pub- 
lished pursuant  to  an  act  of  congress,  and  the  cashier,  who  made 
oath  thereto,  and  the  directors,  who  certified  to  the  correctness 
thereof,  did  so  under  the  authority  conferred  upon  them,  and  in 
discharge  of  a  duty  imposed  upon  them  by  law;  that,  from  the 
facts  thus  proved,  the  bonds  signed  by  the  complainant  are  void 
as  to  him,  because  he  became  surety  thereon  by  reason  of  such 
fraudulent  representations  of  the  respondent.  It  nowhere  ap-"""" 
pears  in  the  testimony  that  Armstrong,  the  cashier,  was  author- 
ized by  the  bank  in  any  way  to  make  representations  in  this^ 
matter  of  surety  on  Smith's  bonds,  or  that  it  was  in  the  line  of 
his  duty  as  cashier  to  do  so.  Any  statements  made  by  him  to 
Lieberman  as  to  Smith's  honesty,  the  condition  of  his  books  and 

28 


434  FIDELITY  BONDS. 

accounts,  and  the  probable  risk  to  his  surety,  could,  therefore, 
in  no  wise  bind  the  bank.  Lieberman  took  them  at  his  own 
risk,  as  the  individual  judgments  of  Armstrong.  The  supreme 
court  of  Kentucky,  in  Graves  v.  Bank,  10  Bush.  23,  held  that 
published  reports  of  the  assets  and  liabilities  of  a  national  bank, 
under  the  acts  of  congress,  which  were  false,  but  which,  under 
the  proof,  induced  a  person  to  become  surety  on  the  official  bond 
of  the  cashier  of  the  bank,  made  the  bond  void  as  to  such  surety, 
and  relieved  him  from  liability  thereon.  The  contrary  doctrine 
is  maintained  in  Bank  v.  Albee,  63  N.  H.  152,  where,  after  re- 
viewing the  Graves  case,  the  court  says :  Such  ' '  report  was  not 
due  to  persons  considering  the  question  of  becoming  sureties  of 
the  treasurer.  It  was  a  duty  imposed  by  statute  for  the  benefit 
of  depositors,  and  not  to  enable  a  reader  of  the  public  reports  to 
determine  whether  the  treasurer  was  a  man  whose  official  bond 
he  could  safely  sign."  This  reason  applies  with  equal  force  to 
the  case  now  before  us.  It  is  difficult  to  perceive  upon  what 
principle  of  law  or  equity  such  published  reports  of  the  bank 
can  be  held  as  an  inducement  to  Lieberman  to  become  surety  on 
Smith's  bond.  They  were  not  made  by  the  bank  for  that  pur- 
pose. Their  publication  from  time  to  time  had  no  relation  to 
such  suretyship,  nor  did  they  disclose  upon  their  face  whether 
Smith  was  honest  or  dishonest.  If  Lieberman  saw  fit  to  draw 
from  such  reports  the  conclusion  that  he  could  safely  become 
surety  on  Smith's  official  bond,  it  was  unquestionably  his  own 
volition,  and  without  participation  of  the  bank,  and  for  which 
the  bank  should  not  be  held  responsible.  There  seems  to  be, 
therefore,  nothing  either  in  the  statements  of  the  cashier,  Arm- 
strong, or  in  the  published  reports  of  the  bank,  that  would  re- 
lieve Lieberman  of  his  liability  as  surety  on  the  bonds. 

2.  The  main  and  most  important  question  in  this  case  is 
raised  by  the  statute  of  limitations.  The  statute  relating  to 
bonds  of  this  character  is  as  follows:  "No  action  shall  be  brought 
upon  any  bond  given  to  the  president,  directors  and  company 
of  any  bank,  or  to  any  corporation,  by  any  officer  of  such  bank 
or  corporation,  with  condition  for  his  good  behavior  or  for  the 
faithful  discharge  of  the  duties  of  his  station,  or  touching  the 
execution  of  his  office,  against  either  principal  or  sureties,  after 
the  expiration  of ''two^years  from  the  accruing  of  the  cause*"  of 
such  action ;  and  no  action  shall  be  brought,  and  no  proceeding 
shall  be  had  upon  any  such  bond  or  upon  any  judgment  thereon, 


LIEBERMAN  v.  FIRST  NAT.  BANK.  435 

against  either  principal  or  sureties,  for  any  cause  of  action  ac- 
cruing after  the  expiration  of  six  years  from  the  date  of  such 
bond. ' '  Rev.  Laws,  p.  889,  §  11.  No  question  in  this  case  arises 
under  the  last  clause  of  the  law,  as  the  evidence  shows  that  all 
the  defalcations  occurred  within  six  years  from  the  date  of  the 
bond  under  which  they  are  claimed  in  each  case.  We  have, 
therefore,  only  to  deal  with  the  two  years'  limitation  in  the  first 
clause.  Judgment  was  entered  February  24,  1893.  Three  items 
of  defalcation  under  the  bond  of  July  6,  1885,  viz. :  April  11, 
1891,  $500;  July  2,  1891,  $500;  July  3,  1891,  $1,500;  amounting 
to  $2,500,^are  within  the  two  years,  and  would  not  be  affected 
by  the  statute  in  any  event.  The  residue  of  the  defalcations  are 
without  the  two  years.  Does  the  statute  of  limitations  bar  re- 
covery, as  claimed  by  the  appellant?  It  was  shown  in  the  evi- 
dence that  Smith  had  fraudulently  abstracted  $4,600  of  bank 
funds  at  the  date  of  the  first  bond,  November  1,  1879 ;  that  un- 
der that  bond  he  so  abstracted  $11,650;  and  under  the  bond  of 
July  6, 1885,  $27,750 ;  that  all  these  peculations  were  fraudulently 
concealed  by  entries  and  alterations  so  skillfully  made  by  him  on 
the  books  of  the  bank  as  to  escape  detection  until  he  made  dis- 
closure of  the  same  about  February  18,  1893;  that  during  all 
that  time  he  was  a  capable  and  trusted  officer  of  the  bank,  en- 
joying the  confidence  of  his  employers  and  of  the  community. 
The  respondent  contends  that  the  bar  of  the  statute  is  removed 
by  the  concealed  fraud  of  Smith. 

The  question  whether  the  fraudulent  concealment  of  the  ex- 
istence of  the  cause  of  action  will  hinder  the  operation  of  the 
statute  of  limitations  is  one  which  has  been  much  discussed,  and 
upon  which  there  has  been  a  radical  difference  of  opinion.  On 
one  side  it  is  said  that  the  statute  in  plain  terms  fixes  the  time 
when  action  shall  be  brought  after  the  cause  of  action  accrues; 
that  the  cause  of  action  accrues  when  the  act  is  done  and  the 
fraud  is  consummated,  and  from  that  time,  and  not  from  the 
time  the  plaintiff  discovered  it,  the  statute  interposes  as  a  pro- 
tection; that  while  courts  of  equity  may  make  an  exception  in 
cases  of  fraud,  because  they  are  not  strictly  bound  by  the  stat- 
ute, yet  for  courts  of  law  to  do  the  same  is  to  except  from  the  law 
cases  which  are  plainly  within  its  terms.  On  the  other  side,  it 
is  said  that  the  statute  must  be  expounded  reasonably,  so  as  to 
suppress,  and  not  to  extend,  the  mischiefs  it  was  intended  to 
cure;  that  it  was  intended  to  suppress  fraud,  by  preventing 


436  FIDELITY  BONDS. 

unjust  claims  from  starting  up  after  a  great  lapse  of  time,  when 
evidence  by  which  they  might  be  repelled  was  forgotten  or  had 
ceased  to  exist;  that  it  should  not,  therefore,  be  so  construed  as 
to  encourage  fraud,  by  enabling  those  who,  through  falsehood 
or  deceit,  have  managed  to  keep  one  in  ignorance  of  the  fact  that 
he  had  a  cause  of  action,  to  take  advantage  of  their  own  wrong- 
doing, under  a  plea  of  the  statute.  ' '  We  think, ' '  says  the  court 
in  Reynolds  v.  Hennessy  (E.  L.),  23  Atl.  639,  "the  latter  posi- 
tion is  best  sustained  by  reason  and  authority.  It  certainly  is 
in  the  line  of  justice  and  morality.  The  only  objection  to  it 
is  that  it  introduces  an  exception  into  the  statute."  The  same 
objection  lies,  to  claims  in  favor  of  the  government,  and  to  cases 
of  new  promise.  The  statute  does  not  take  away  the  debt,  but 
simply  affects  the  remedy.  Hence,  if  one  by  fraud  conceals 
the  fact  of  a  right  of  action,  it  is  not  ingrafting  an  exception 
on  the  statute  to  say  that  he  is  not  protected  thereby,  but  it  is 
simply  saying  that  he  never  was  within  the  statute,  since  its 
protection  was  never  designed  for  such  as  he.  By  fraud  he  has 
put  himself  outside  of  its  pale.  Whether  this  be  taken  as  an 
exception,  or  only  a  limitation  of  the  statute,  it  rests  upon  sound 
reason  and  just  policy.  Id. ;  Bree  v.  Holbeck,  2  Doug.  655  (Lord 
Mansfield)  ;  South  Sea  Co.  v.  Wymensdell,  3  P.  Wms.  143.  Such 
a  construction  has  been  so  frequently  applied  to  the  statute, 
that  it  is  now  said  to  have  the  weight  of  authority  in  its  favor. 
Massachusetts,  Maine,  New  Hampshire,  Pennsylvania,  Illinois, 
Indiana,  and  Texas  are  among  the  states  supporting  this  view, 
while  the  contrary  has  been  held  in  New  York,  Virginia,  North 
Carolina,  South  Carolina,  and  New  Jersey.  In  Turnpike  Co. 
v.  Field,  3  Mass.  201,  Chief  Justice  PARSONS  uses  this  language : 
' '  That,  where  the  delay  in  bringing  the  suit  is  owing  to  the  fraud 
of  the  defendant,  the  cause  of  action  ought  not  to  be  consid- 
ered as  having  accrued  until  the  plaintiff  could  obtain  knowl- 
edge that  he  had  a  cause  of  action;  and  if  this  knowledge  was 
concealed  from  him  by  the  defendant  fraudulently,  the  court 
would  violate  a  sacred  rule  of  law  if  they  permitted  the  defend- 
ant to  avail  himself  of  his  own  fraud."  The  reason  given  by 
Lord  Redesdale  in  Hovenden  v.  Lord  Annesley,  2  Schoales  &  L. 
634,  why  the  statute  should  not  operate  as  a  bar  where  fraud 
has  been  concealed  by  one  party  until  it  has  been  discovered 
by  the  other,  is  ' '  that  the  statute  ought  not,  in  conscience,  to  run ; 
the  conscience  of  the  party  being  so  affected  that  he  ought  not 


LIEBERMAN  v.  FIRST  NAT.  BANK.  437 

to  avail  himself  of  the  length  of  time."  Whatever  may  be  the 
conflict  in  court  of  law  upon  this  point,  it  is,  without  controversy, 
the  settled  doctrine  in  courts  of  equity.  Ang.  Lim.  183.  Cos- 
ter v.  Murray,  5  Johns.  Ch.  522. 

But  it  is  insisted  that,  while  this  rule  prevails  against  the  per- 
son who  committed  the  fraud,  a  different  rule  exists  in  favor  of 
innocent  sureties,  who  had  no  knowledge  of,  and  did  not  par- 
ticipate in,  such  fraud;  that  while  Smith,  who  fraudulently 
concealed  his  peculations,  would  not  be  suffered  to  shield  him- 
self behind  the  statute,  Lieberman,  his  surety,  who  is  innocent 
of  fraud,  has  a  right  to  set  up  the  statute  as  his  protection,  y 
In  cases  like  this,  is  there  any  such  distinction  'between  the  lia- 
bility of  principal  and  surety?  In  Charles  v.  Haskins,  14  Iowa 
473,  which  was  an  action  against  sheriff's  sureties  for  wrongful 
seizure  of  goods  under  an  execution,  the  court  says,  "The  gov- 
erning principle  is  that  the  liability  of  the  surety  is  dependent 
upon  that  of  the  principal. ' '  In  Zent  's  Ex  'r  v.  Heart,  8  Pa.  St. 
337,  which  was  an  action  against  a  surety  on  a  promissory  note 
barred  by  the  statute,  where  the  principal  had  paid  interest 
within  six  years,  Chief  Justice  GIBSON  held  that  "the  decisions 
at  length  have  settled  that  the  payment  of  one  is  the  acknowl- 
edgment of  both,  whenever  it  has  been  made  during  their  joint 
responsibility, — in  other  words  before  it  has  been  severed  by 
the  death  of  one  of  them."  In  Boehmer  v.  Schuykill  Co.,  46 
Pa.  St.  452,  which  was  an  action  against  sureties  on  a  county 
treasurer's  bond,  where  the  defense  was  that  the  county  com- 
missioners had  exceeded  their  power  in  borrowing  the  money 
which  came  into  the  treasurer's  hands,  and  that  the  money  so 
received  was  not  within  the  bond,  the  .court  (Chief  Justice  WOOD- 
WARD) says,  "In  so  far  as  the  principal  is  liable  by  the  more 
force  and  terms  of  the  bond,  the  surety  is  bound  with  him. ' '  In 
Patterson's  Appeal,  48  Pa.  St.  342,  the  sureties  of  an  abscond- 
ing assignee,  who  was  trustee  for  the  benefit  of  creditors,  were 
held  not  entitled  to  credit  on  account  which  their  principal  could 
not  claim,  by  reason  of  fraud.  STORY,  J.,  says:  "The  sureties 
stand  in  no  better  position  than  their  principal.  The  measure 
of  his  responsibility  is  the  measure  of  theirs."  In  Bradford 
v.  McCormich,  (Iowa)  32  N.  W.  94,  which  was  an  action  against 
the  sureties  of  a  justice  of  the  peace  for  money  collected  and 
fraudulently  concealed  until  the  statute  had  run,  the  court  says : 
"The  statute  in  this  case  is  pleaded  by  the  sureties,  and  they 


438  FIDELITY  BONDS. 

have  not  been  guilty  of  any  fraud ;  but  they,  without  doubt,  we 
think,  are  bound  by  the  fraudulent  conduct  of  their  principal. 
The  liability  of  the  surety  is  dependent  upon  the  liability  of  the 
principal.  The  ordinary  rule  is  that,  if  the  principal  is  bound, 
so  is  the  surety."  This  point  has  been  directly  adjudged  in  this 
state.  In  Sparks  v.  Farmers'  Bank,  3  Del.  Ch.  275, — a  case 
against  the  sureties  of  a  defaulting  cashier  of  the  bank, — the  pre- 
cise question  was  determined.  The  chancellor  there  held  that 
the  bank  was  entitled  to  collect  of  the  sureties  so  much  of  the  def- 
alcations as  occurred  more  than  two  years  previous  to  the  en- 
tering of  the  judgment  on  the  bond,  for  the  reason  that  "their 
equity  to  do  so  arises  out  of  the  fact  that  the  defalcation  was  a 
fraud  concealed  from  the  bank,  with  respect  to  which  a  court 
of  equity  will  not  permit  the  statutory  bar  to  be  set  up  until 
the  lapse  of  the  prescribed  term  after  the  discovery  of  the 
fraud."  This  case  was  argued  by  some  of  the  ablest  lawyers 
of  the  state.  While  it  is  true  that  the  distinction  between  the 
liability  of  surety  and  principal  in  cases  like  this,  where  there 
is  concealed  fraud,  does  not  seem  to  have  been  raised  and  dwelt 
upon  by  counsel  for  the  sureties,  still  it  is  only  fair  to  assume 
that  the  failure  to  do  so  did  not  arise  from  any  lack  of  knowl- 
edge or  research,  but,  rather,  from  lack  of  material  for,  and  con- 
fidence in,  such  a  defense.  The  case  of  Grimshaw  v.  Mayor,  etc., 
5  Del.  Ch.  183,  which  was  against  the  sureties  of  a  defaulting 
treasurer  of  the  city  of  Wilmington,  has  been  urged  as  counter- 
vailing this  doctrine.  The  chancellor,  in  his  opinion,  expressly 
excepts  cases  like  the  present  out  of  his  consideration,  in  the  fol- 
lowing language:  "I  shall  not  enter  into  a  general  discussion 
of  the  principle  applicable  to  a  case  where  a  concealed  fraud  has 
been  proved  to  exist  on  the  part  of  the  defendant  in  a  suit  brought 
against  him  after  the  discovery  of  the  fraud  has  been  made,  but 
not  within  the  period  mentioned  in  the  statute  in  that  respect, 
to  make  him  account  for  the  amount  of  said  fraud,  because  I 
am  of  the  opinion  that  the  principles  adjudged  in  cases  of  that 
kind,  where  the  statutory  limitation  has  been  pleaded  as  a  bar 
to  the  cause  of  action,  are  not  applicable  to  the  case  before  me, 
*  *  *  It  is  true  that  where  one  person  defrauds  another  of 
his  just  rights,  and  the  fraud  is  concealed  at  the  time  of  its 
commission,  and  not  discovered  within  the  period  embraced  by 
the  statute  of  limitations,  the  party  defrauded  has  a  right  to 
bring  his  action  for  the  recovery  of  the  amount  of  which  he  has 


LIEBERMAN  v.  FIRST  NAT.  BANK.  439 

been  defrauded  at  any  time  within  the  proper  legal  period  for 
bringing  actions."  The  cases  of  Hudson  v.  Bishop  (C.  C.),  32 
Fed.  519,  U.  S.  v.  Mark's  Sureties,  3  Wall.  Jr.  358,  Fed.  Gas. 
No.  11,990,  and  of  Pratt  v.  Northam,  5  Mason  95,  Fed.  Gas.  No. 
11,376,  relied  upon  by  counsel  for  the  appellant,  do  not  seem 
to  modify  this  principle  relating  to  sureties. 

It  therefore  seems  to  be  established  that,  in  cases  on  official 
bonds,  coiK'ealed  fraud  on  the  part  of  the  principal  will  deprive 
both  principal  and  surety  of  the  benefit  of  the  statute  of  limi- 
tations; that  the  statute  does  not  begin  to  run  until  the  fraud 
is  discovered.  The  reason  seems  to  be  that  in  such  bonds  the 
sureties  guaranty  the  good  conduct  and  faithfulness  of  the  prin- 
cipal in  the  discharge  of  the  duties  of  his  office,  and  that  in 
equity  and  good  conscience,  they  should  not  be  exempt  from  lia- 
bility for  his  misconduct  and  peculations  because  by  fraudulent 
concealment  he  has  prevented  discovery  until  the  time  limited 
by  the  statute  to  bring  action  has  expired.  Any  other  construc- 
tion would  make  the  very  frauds  against  which  the  sureties  cove- 
nanted the  means  for  relief  from  liability.  The  bond  in  such 
case,  instead  of  securing  the  faithfulness  of  the  officer,  would 
tend  to  promote  on  his  part  skillful  and  fraudulent  concealed 
peculations,  and  would  be  an  inducement  to  fraud.  If  concealed 
fraud,  which  the  principal  undertakes  not  to  perpetrate,  de- 
prives such  principal  of  the  protection  of  the  statute,  is  it  not 
equally  reasonable  that  the  undertaking  of  the  surety  that  such 
fraud  should  not  be  perpetrated  excludes  the  surety,  also?  The 
principal  undertakes  not  to  commit  fraud.  The  surety  guar- 
anties that  he  shall  not  commit  fraud.  There  would  seem  to 
be  no  substantial  reason  why  their  respective  liabilities  for  such 
fraud  should  be  different.  It  may  seem  hard  that,  by  reason  of 
the  fraud  of  a  principal,  the  liability  of  an  innocent  surety 
should  be  continued  for  many  years  after  the  expiration  of  the 
time  named  in  the  statute  of  limitations.  The  hardship  would 
be  greater  if  another  equally  innocent  person  should  be  made 
to  suffer  by  such  fraud  in  cases  where  the  surety  undertakes 
that  the  principal  shall  be  faithful  and  honest  in  that  very 
matter.  The  equities  being  equal  as  to  innocence,  the  added  bur- 
den of  his  obligation  rests  upon  the  surety.  "It  is  true  that 
equity  will  not  relieve  against  the  bar  of  the  statute,  in  favor 
of  the  party  who  has  been  in  laches  in  not  using  means  within 
his  power  to  discover  the  fraud."  Sparks  v.  President,  etc.,  3 


440  FIDELITY  BONDS. 

Del.  Ch.  306.  It  must  be  remembered  that  in  these  bonds  Lieber- 
man  undertook  for  the  fidelity  of  Smith  absolutely  and  at  all 
events,  and  engaged  unconditionally  to  make  good  his  defaults. 
True  it  is,  he  contracted  in  view  of  the  statute  of  limitations. 
It  is  equally  true  that  he  contracted  in  view  of  the  law  contained 
in  adjudged  cases  in  this  state  controlling  the  application  of  the 
statute.  The  rule  is  that :  "  It  is  good  faith,  and  not  diligence, 
which  is  required  of  the  creditor  as  a  condition  of  his  right  to 
hold  the  surety;  but  the  creditor  or  obligee  in  a  bond  is  not 
obliged,  for  the  benefit  of  sureties,  to  watch  the  principal.  It 
is  because  it  is  really  impracticable  for  this  to  be  done  effectively 
and  at  all  times,  on  the  part  of  large  corporations,  that  official 
bonds  are  required.  To  subject  the  responsibility  of  such  sure- 
ties  to  so  indefinite  a  question  as  whether  due  diligence  has  been 
exercised  by  directors  would  render  these  securities  worthless." 
Id.  302.  Judge  Thompson,  in  Wayne  v.  Bank,  52  Pa.  St.  349, 
thus  defines  the  diligence  required  in  the  officers  of  a  bank :  "I 
know  of  no  positive  duty  resting  on  the  officers  of  the  bank  to 
investigate  with  a  view  to  inform  a  surety,  in  the  absence  of  any 
inquiry  or  request  of  him  to  do  so.  Had  such  a  request  been 
made,  and  it  had  been  denied  or  evaded,  a  different  question 
might  have  been  presented.  Neither  the  bank  nor  its  officers 
knew  or  had  reason  to  suspect,  so  far  as  we  can  learn,  the  def- 
alcation afterwards  discovered."  Chief  Justice  SHAW  tersely 
says  in  Bank  v.  Root,  2  Mete.  (Mass.)  540,  that  "negligence 
of  directors  and  their  agents  is  no  excuse."  In  a  case  cited  by 
the  appellants  (Graves  v.  Bank,  10  Bush.  28)  the  measure  of 
diligence  is  thus  defined:  "The  directors  may  have  been  neg- 
ligent in  the  discharge  of  their  duties,  and  this  negligence  may 
have  enabled  Mitchell  for  the  time  to  misappropriate  the  funds 
of  the  bank,  and  to  conceal  its  true  condition  by  the  false  reports 
made  to  the  controller  of  the  currency,  and  by  false  entries 
upon  the  books  of  the  association;  but  this  negligence  cannot 
avail  the  sureties,  who  covenanted  that  their  principal  should 
well  and  truly  perform  the  duties  of  his  position.  Their  cove- 
nant is  unconditional,  and  no  failure  of  duty  on  the  part  of  the 
directors  of  the  association,  short  of  actual  fraud  or  bad  faith, 
can  be  deemed  sufficient  to  exonerate  them  from  its  perform- 
ance." The  testimony  in  this  case  discloses  no  such  laches  as 
would  discharge  the  surety.  It  shows  that  Smith  was  generally 
esteemed  as  an  honest  and  capable  officer;  that  the  usual  ex- 


LIEBERMAN  v.  FIRST  NAT.  BANK.  441 

axninations  of  the  condition  of  the  bank  from  time  to  time  were 
had,  both  by  the  officers  of  the  bank  and  by  a  government  ex- 
aminer; that  no  suspicion  of  the  defalcations  of  Smith  existed 
in  the  mind  of  any  one  at  any  time  prior  to  February,  1893; 
that  Lieberman  made  no  request  for  an  examination  of  Smith's 
accounts;  that  the  defalcations  were  therefore  concealed  by 
Smith,  who  was  a  skilled  accountant.  There  is  no  claim  that  the 
bank  did  not  exercise  good  faith  towards  the  surety  at  all 
times. 

A  careful  examination  of  this  case  discloses  no  ground  for 
the  relief  of  the  surety.  The  decree  of  the  chancellor  in  that 
respect  is  therefore  affirmed.  Inasmuch,  however,  as  it  appears 
from  the  entire  record  that  certain  errors  have  been  inadvert- 
ently incorporated  into  the  decree  of  the  chancellor  in  respect 
to  the  date  of  the  first  bond,  the  duration  of  the  defalcation  un- 
der the  second  bond,  and  the  allowance  of  interest  on  the  penal 
sum  of  each  bond,  it  is  the  judgment  of  this  court  that  said  surety 
is  liable  for  the  defalcations  of  said  Smith,  with  interest  from 
the  date  of  each  defalcation  to  the  3d  day  of  December,  1898, 
the  date  of  the  decree  of  the  chancellor  in  this  case,  provided 
the  aggregate  sum  of  the  principal  and  interest  ascertained  to 
said  date  on  each  bond  shall  not  exceed  the  penalty  thereof; 
and  the  said  surety  is  also  further  liable  for  interest  on  such 
aggregate  sum  so  ascertained  from  the  said  3d  day  of  Decem- 
ber, 1898,  the  date  of  said  decree.  And  now,  to  wit,  this  the 
19th  day  of  January,  1900,  it  appearing  to  the  court  that  on  the 
3d  day  of  December,  1898,  it  was  ascertained  by  the  decree  of 
the  chancellor  in  this  case  that  there  was  due  on  each  of  the 
said  bonds  a  sum  in  excess  of  $15,000,  the  penalty  thereof :  Now, 
therefore,  it  is  ordered,  adjudged,  and  decreed  that  the  said 
the  First  National  Bank  of  Wilmington,  the  respondent,  have 
liberty  to  collect  on  each  of  its  judgments  entered  on  each  of  the 
said  bonds  in  the  superior  court  of  the  state  of  Delaware,  in 
and  for  Newcastle  county,  against  Nathan  Lieberman,  the  ap- 
pellant, the  sum  of  $15,000  with  interest  thereon  from  the  3d 
day  of  December,  1898,  the  date  of  the  said  decree,  and  the 
date  of  the  authoritative  and  legal  ascertainment  of  the  amount 
due  on  each  of  the  said  bonds.  And  it  is  further  ordered  that 
the  appellant  pay  the  costs  in  this  case  within  three  months,  or 
attachment  issue. 


442  FIDELITY  BONDS. 

GOLDMAN  v.  FIDELITY  AND  DEPOSIT  CO.    1905. 
125  Wis.  390;  104  N.  W.  Rep.  80. 

DODGE,  J.  Certain  general  views  and  conclusions  will  dis- 
pose of  a  considerable  number  of  the  very  many  objections  raised 
by  appellant  to  a  recovery  upon  the  guaranty  bond,  without 
the  necessity  of  detailed  consideration.  Among  such  is  the  rule 
that  neither  falsity  of  any  of  the  statements  contained  in  plain- 
tiff's so-called  "applications,"  whether  they  be  deemed  repre- 
sentations or  warranties,  nor  any  omission  upon  which,  under 
the  bond,  appellant  might  claim  a  forfeiture,  can  be  available 
except  as  they  have  been  expressly  pleaded.^  The  plaintiff  is 
not  required,  in  the  first  instance,  to  prove  the  truth  of. all  the 
statements  contained  in  his  application,  nor  to  negative  all 
possible  grounds  of  forfeiture.  It  is  for  the  defendant  to  point 
out  such  of  these  as  it  elects  to  depend  upon  for  defense.  May 
v.  Insurance  Co.,  25  Wis.  291,  3  Am.  Rep.  76;  Redman  v.  Ins. 
Co.,  49  Wis.  431,  4  N.  W.  591;  Benedix  v.  Ins.  Co.,  78  Wis. 
77,  47  N.  W.  176 ;  Johnston  v.  Ins.  Co.,  94  Wis.  119,  68  N.  W. 
868 ;  Chambers  v.  Ins.  Co.,  64  Minn.  495,  67  N.  W.  367,  58  Am. 
St.  Rep.  549 ;  Bank  v.  Ins.  Co.,  128  N.  C.  366,  38  S.  E.  90S, 
83  Am.  St.  Rep.  682. 

A  careful  examination  of  the  evidence  discloses  some  which 
the  jury  might  have  deemed  credible  and  sufficient  to  support 
their  findings  upon  the  first,  second,  fourth,  fifth,  and  seventh 
issues  mentioned  in  the  statement  of  facts.  True,  as  to  several 
of  these,  apparently  inconsistent  statements  were  made  by  the 
plaintiff,  but  such  inconsistencies  were  for  the  jury  to  weigh  and 
resolve,  and  in  their  judgment  to  reach  the  real  truth  of  such 
matters,  and  we  are  unable  to  say  that  there  was  entire  lack  of 
credible  evidence  to  support  their  conclusions  above  catalogued. 

The  only  remaining  pleaded  defense  is  the  alleged  failure  of 
the  plaintiff  to  limit  the  amount  of  his  money  in  the  hands  of 
O'Brien,  at  any  one  time,  to  about  $50.  On  this  question  the 
jury  found  with  the  defendant.  The  trial  court  ignored  that 
finding  upon  two  grounds,  stated  in  his  opinion:  First,  that 
the  statement  in  the  application  on  this  subject  was  so  indefinite 
as  to  refute  the  idea  that  it  was  a  warranty ;  Ibut,  secondly,  that 


GOLDMAN  v.  FIDELITY  ETC.  CO.  443 

the  finding  was  not  supported  by  the  evidence  in  a  sense  to  de- 
feat recovery,  for  the  reason  that  only  a  general  conduct  of  the 
business,  whereby  customarily  a  larger  amount  of  money  was  al- 
lowed to  be  in  0  'Brien  's  hands  could  have  such  result,  and  that 
there  was  no  evidence  that  such  larger  sum  had  ever  been  allowed 
to  come  into  his  hands  at  any  one  time  until  the  time  of  his  em- 
bezzlement, which  was  sporadic  and  out  of  the  ordinary  course 
of  events,  and  which  immediately  aroused  plaintiff  to  activity  to 
put  a  stop  to  such  conduct  by  discharging  O'Brien.  In  this 
view  of  the  law,  we  think  the  trial  court  was  correct.  The  in- 
demnity of  this  bond  was  against  such  misconduct  of  the  em- 
ploye in  breach  of  his  instructions  and  of  the  customary  pre- 
cautions which  his  employer  exercised,  and  the  fact  that,  when 
he  undertook  to  acquire  himself  and  embezzle  his  employer's 
money,  he  was  able  to  make  such  attempts  successful  to  the  ex- 
tent of  some  $106  before  his  delay  in  reporting  and  remitting 
had  aroused  his  employer  to  suspicion  and  interference,  was  no 
proof  that  in  the  conduct  of  the  business  he  had  been  allowed  to 
exceed  approximately  the  sum  of  $50.  Apart  from  this  one  in- 
stance, there  is  no  proof  in  the  record  as  to  the  amount  of  his 
periodical  collections  which  occurred  during  one  week  in  each 
month ;  but  it  does  appear  that  certain  itemized  lists  of  such  col- 
lections were  introduced  in  evidence,  and  were,  of  course,  before 
the  trial  court  in  rendering  his  decision.  These  would  very 
probably  indicate,  approximately  at  least,  the  amount  which 
O'Brien  customarily  obtained  on  each  of  his  monthly  collecting 
tours.  But  the  appellant  has  failed  to  preserve  in  the  bill  of 
exceptions  any  copy  of  these  statements  from  which  we  can  ap- 
proximate that  information.  We  must  therefore,  under  the  fa- 
miliar rule  that  error  is  not  to  be  presumed,  but  must  be  made 
to  appear,  assume  that  these  statements  served  to  support  the 
trial  court's  conclusion  that  there  was  no  evidence  of  a  breach 
of  this  statement  in  the  application,  even  if  the  same  were 
deemed  to  be  a  warranty. 

Another  subject  upon  which  much  is  said  in  appellant's  brief 
is  in  the  failure  of  plaintiff  to  immediately  notify  the  defend- 
ant upon  discovery  of  O'Brien's  misconduct.  His  suspicions 
were  not  aroused  until  about  the  18th  of  June,  when  he  imme- 
diately went  and  found  O'Brien  in  an  unintelligible  state  of  in- 
toxication, made  effort  to  regain  from  him  the  property  in  his 
hands,  and,  as  soon  as  possible,  to  obtain  information  from  him 


444  FIDELITY  BONDS. 

and  to  protect  himself  as  far  as  he  could  against  the  loss,  which 
effort  seemed  to  have  occupied  him  until  the  5th  or  6th  of  July, 
v^  when  he  returned  home,  and  on  the  7th  July  sent  notice  to  the 
defendant.  The  court  set  aside  the  finding  of  the  jury  that  this 
notice  was  given  immediately,  but  held  that  the  right  of  forfeit- 
ure which  might  be  predicated  upon  such  failure  had  been 
waived.  This  defense  would  seem  to  be  unavailable  to  the  de- 
fendant in  any  event,  because  not  pleaded,  but,  since  it  was 
treated  as  before  the  trial  court,  we  should  perhaps  say  that  we 
agree  with  his  conclusion  of  waiver.  Defendant  made  no  ob- 
jection on  this  ground,  but  called  on  the  plaintiff  to  make  ef- 
fort to  get  a  settlement  with  0  'Brien,  then  to  make  up  his  item- 
ized claim  or  proofs  of  loss,  which  were  made  about  October  20th, 
and  thereafter  called  upon  plaintiff  to  take  steps  for  the  criminal 
prosecution  of  O'Brien  in  accordance  with  a  provision  contained 
in  the  bond,  but  later  called  upon  him  to  aid  an  agent  of  the  de- 
fendant in  an  extended  investigation  of  the  accounts  to  ascer- 
tain the  amount  of  the  shortage.  Defendant  contends  that  it 
could  not  be  charged  with  waiver  until  it  had  knowledge  of  the 
delay  in  sending  this  notice.  That  may  be  conceded,  but  when 
in  October  it  was  furnished,  with  plaintiff's  itemized  claim, 
it  would  seem  that  it  must  have  had  such  information,  for  that 
claim  was  required  to  give  the  dates  of  the  embezzlements  and 
other  information.  That  itemized  claim  was  in  evidence,  open 
to  inspection  by  the  trial  court,  but  has  not  been  included  in  the 
bill  of  exceptions,  so  that  again  we  must  indulge  in  the  pre- 
sumption, if  necessary,  that  it  supplied  facts  upon  which  the 
trial  court  based  its  conclusion.  If  information  was  then  con- 
veyed to  the  defendant  of  this  delay  in  sending  the  notice,  there 
can  be  no  doubt  that  the  calling  on  the  plaintiff  to  take  various 
steps  thereafter  and  finally  joining  issue  in  this  action  Avithout 
predicating  any  defense  upon  such  delay,  must  be  construed  as  a 
waiver  thereof.  Cannon  v.  Ins.  Co.,  53  Wis.  593,  11  N.  W.  11 ; 
Kidder  v.  The  Knights  T.  &  M.  Life  Indemnity  Co.,  94  Wis. 
538,  69  N.  W.  364;  Fraser  v.  Ins.  Co.,  114  Wis.  510,  90  N.  W. 
476. 

The  only  remaining  question  is  as  to  the  proof  of  O'Brien's 
embezzlement.  On  this  subject  his  entries,  reports,  and  state- 
ments made  in  the  course  of  his  duties  in  the  guarantied  em- 
ployment are  admissible  against  the  surety.  Stephens  v.  Shafer, 
43  Wis.  54,  65,  3  N.  W.  835,  33  Am.  Rep.  793 ;  Clark  v.  Wilkin- 


FIRST  NAT.  BANK  v.  GERKE.  445 

son,  59  Wis.  543,  551,  18  N.  W.  481 ;  Bank  of  Tarboro  v.  Fidelity 
&  Deposit  Co.,  128  N.  C.  366,  38  S.  E.  908,  83  Am.  St.  Rep.  682 ; 
Lancashire  Ins.  Co.  v.  Callahan,  68  Minn.  277,  71  N.  W.  261,  64 
Am.  St.  Rep.  475.  Proof  was  made  of  certain  such  statements 
and  admissions  from  which,  in  connection  with  the  accounts  and 
records  kept  by  plaintiff,  he  claimed  to  be  able  to  state  the 
amount,  both  of  money  and  goods,  which  O'Brien  had  appro- 
priated to  his  own  use.  Besides  this,  it  was  shown  that  defend- 
ant's agent,  upon  mutual  investigation  of  such  accounts  and 
records,  concurred  with  plaintiff  in  finding  the  shortage  as  stated 
and  allowed  by  the  judgment.  This  was  sufficient  to  warrant 
the  jury  in  finding  embezzlement  to  that  amount.  "We  find  no 
reason  to  reverse. 

Judgment  affirmed. 


b.   Any  material  change  in  the  duties  of  the  principal  will  dis- 
charge a  surety  from  liability  on  a  fidelity  bond. 

FIRST  NATIONAL  BANK  v.  GERKE.    1888. 
68  Md.  449;  13  Atl.  Rep.  358;  6  Am.  St.  Rep.  453. 

Appeal  from  Superior  court  of  Baltimore  city. 

Action  on  a  bond  executed  to  plaintiff,  the  First  National 
Bank  of  Baltimore,  by  John  D.  Lisle,  principal,  and  Charles 
Gerke,  surety,  defendants.  Judgment  was  rendered  for  defend- 
ant Gerke,  and  plaintiff  appeals. 

ALVERY,  C.  J.  This  action  was  brought  upon  a  bond  by  the 
appellant  against  John  D.  Lisle  and  the  appellee,  the  latter 
being  surety.  Lisle,  the  principal  in  the  bond,  having  absconded, 
was  returned  "not  summoned."  The  bond  bears  date  the  13th 
of  August,  1867,  and  was  given  by  Lisle  upon  his  appointment 
by  the  appellant  to  the  position  of  assistant  bookkeeper  in  its 
banking  house.  The  bond  recites  that  "whereas,  the  above- 
bound  John  D.  Lisle  hath  been  duly  appointed  a  clerk  of  the 
said  First  National  Bank  of  Baltimore,"  therefore  the  condi- 
tion of  the  obligation  is  such  "that  if  the  said  John  D.  Lisle, 
for  and  during  the  time  he  shall  continue  in  employment  in  the 
said  First  National  Bank  of  Baltimore,  shall  faithfully  and 
honestly  perform  all  the  duties  and  services  in  the  said  First 


448  FIDELITY  BONDS. 

National  Bank  of  Baltimore  which  shall,  from  time  to  time, 
be  required  of  him  by  the  -board  of  directors  of  said  bank,  or 
the  president  or  cashier  thereof,  or  by  or  under  their  authority, 
and  faithfully  and  honestly  fulfill  all  the  trusts  that  shall  be 
by  them,  or  by  or  under  their  authority  in  him  reposed,  _in  his^. 
said  appointment^of  clerk  of  the  said  First  National  Bank  of  Bal- 
timore, then  this  obligation  to  be  void;  otherwise,  to  be  and  re- 
main in  full  force  and  virtue."  The  bond  was  duly  accepted 
and  approved  by  the  board  of  directors  as  the  "bond  of  John 
D.  Lisle  as  clerk."  The  appellee  pleaded  general  performance 
of  the  condition  of  the  bond,  and  that  plea  was  simply,  in  an  in- 
formal way,  traversed  by  the  appellant,  and  thus  an  issue  was 
forced,  upon  which  the  case  was  tried.  The  proof  in  the  case 
shows  that  Lisle  remained  in  the  employ  of  the  bank  from  a  time 
prior  to  the  date  of  the  bond,  in  August,  1867,  to  the  27th 
day  of  January,  1887 ;  and  that^Jurmg  that  time  his  clirlcaTN 
position,  and  the  amount  of  his  salary,  were  repeated]y  changed. 
His  duties  and  functions  were  not  only  multiplied  and  en-  ] 
larged,  but  his  responsibility,  and  his  facility  for  peculation, 
were  greatly  increased.  From  being  an  assistant  bookkeeper  at 
the  time  the  bond  was  given  and  accepted,  he  was  in  June,  1870, 
appointed  to  the  position  of  deposit  bookkeeper ;  and  in  Novem- 
ber, 1871,  he  was  made  discount  and  foreign  collection  clerk. 
This  latter  position  he  held  until  January,  1872,  when  he  was 
placed  in  the  position  of  note  teller  and  discount  clerk,  which 
position  he  held  down  to  the  time  of  his  leaving  the  bank.  The 
duties  of  his  position  of  note  teller  and  discount  clerk  required 
him  to  separate,  and  to  collect  as  they  fell  due,  all  the  notes 
discounted  by  the  bank,  and  to  collect  all  checks  and  drafts  com- 
ing to  the  bank  for  collection;  and  the  money  thus  received  by 
him  it  was  his  duty  to  account  for  and  pay  over  to  the  receiv- 
ing teller  at  the  end  of  each  day,  or  at  the  beginning  of  the  next 
day.  These  duties  and  functions  pertained  to  the  position  as- 
signed to  Lisle,  and  held  by  him  from  January,  1872,  to  the 
time  of  his  absconding;  and  all  the  large  defalcations,  amount- 
ing in  the  aggregate  to  near  about  $90,000,  were  committed  by 
him  during  the  time  that  he  held  the  position  of  note  teller  and 
discount  clerk.  As  assistant  bookkeeper, — the  position  held  by 
him  at  the  time  the  bond  was  given, — it  was  no  part  of  his 
duty  to  receive  or  pay  out  any  of  the  moneys  of  the  bank;  and 
it  was  in  proof  that  the  appellee  was  informed  by  Lisle,  at  the 


FIRST  NAT.  BANK  v.  GERKE.  447 

time  the  bond  was  given,  that  he  (Lisle)  was  appointed  the  posi- 
tion of  assistant  bookkeeper  in  the  bank. 

Upon  all  the  evidence,  the  appellant  asked  the  court  to  in- 
struct the  jury  that  if  they  should  find  that  Lisle,  from  the  de- 
livery of  the  bond  to  the  time  of  his  leaving  the  bank,  acted  as 
clerk  in  the  bank,  and  that  while  so  acting  he  received  sums  of 
money  belonging  to  the  bank  which  he  fraudulently  retained,  the 
appellant  was  entitled  to  recover.  This  prayer  was  rejected  by 
the  court,  and  we  think  rightly  so.  It  proceeds  upon  the  theory 
that,  as  long  as  Lisle  continued  to  hold  a  clerical  position  in  the 
bank,  the  terms  of  the  condition  of  the  bond  applied  to  him,  and 
operated  as  a  security  for  the  faithful  discharge  of  his  duties, 
and  is  therefore  liable  for  his  defalcations,  notwithstanding  any 
radical  change  made  in  his  position  in  the  bank,  and  in  the 
nature  and  character  of  the  duties  required  of  him  in  his 
changed  position  after  the  bond  was  given.  This  would  certainly 
be  a  very  severe  construction  of  the  bond ;  and  to  justify  it  the 
bond  should  contain  very  plain  and  imperative  terms,  such  as 
we  do  not  find  it  to  contain.  The  bond  should  receive  a  reason- 
able construction,  made  in  the  view  of  the  facts  under  which 
it  was  executed;  and  therefore  the  construction  adopted  by  the 
court  below  would  seem  to  be  proper,  under  all  the  circumstances 
of  the  case.  By  the  instruction  given  at  the  instance  of  the  ap- 
pellee, the  jury  were  directed  that  if  they  should  find  that,  when 
the  bond  was  given,  Lisle  was  but  an  assistant  bookkeeper  in 
the  bank;  that  in  1872  he  was  taken  from  the  position  he  then 
occupied,  and  was  given  the  position  of  note  teller  and  discount 
clerk,  Lisle  appropriated  to  his  own  use  the  money  of  the  bank, 
and  was  enabled  to  do  so  because  of  the  opportunity  afforded 
to  him  in  the  handling  of  the  money  of  the  bank,  in  the  course  of 
the  discharge  of  the  duties  of  his  position  of  note  teller  and  dis- 
count clerk;  and  that  no  opportunity  would  have  been  offered 
him  to  appropriate  such  money  in  his  position  as  assistant,  or  as 
individual  bookkeeper, — then  the  appellant  could  not  recover. 
In  our  judgment,  this  instruction  placed  the  case  fairly  before 
the  jury ;  and,  as  they  are  presumed  to  have  found  their  verdict 
in  accordance  with  the  instruction,  there  is  nothing  in  the  case 
of  which  the  appellant  can  complain.  It  is  one  of  the  well-estab- 
lished principles  of  law  that  the  obligation  of  a  surety  is  not 
to  be  extended  beyond  what  the  terms  of  the  contract  fairly 
import.  A  surety  has  a  right  to  stand  upon  the  very  terms 


448  FIDELITY  BONDS. 

of  his  contract ;  and  if  he  does  not  assent  to  any  variation  of  it, 
and  a  variation  is  made,  such  variation  operates  a  release  of 
the  surety.    In  a  case  of  a  surety  standing  bound  for  the  fidelity 
or  capacity  of  a  principal  appointed  to  a  particular  office  or 
employment,  if  the  nature  of  the  employment  is  so  changed  by 
the  act  of  the  employer  that  the  risk  of  the  surety  is  materially 
altered  from  what  was  contemplated  by  the  parties  at  the  time 
of  entering  into  the  bond,  the  surety  has  a  right  to  say  that  his 
/   obligation  does  not  extend  to  such  altered  state  of  things.     This 
v       is  a  doctrine  in  regard  to  which  the  authorities  all  agree.    Miller 
v.  Stewart,  9  Wheat.  680 ;  Pybus  v.  Gibb,  6  El.  &  Bl.  902 ;  Bank 
v.  Dickerson,  41  N.  J.  Law  448 ;  Mumford  v.  Eailroad  Co.,  2  Lea 
393.     And  it  is  a  principle  of  universal  application  that,  in 
order  to  arrive  at  the  intention  of  the  parties,  the  contract  itself 
must  be  read  in  the  light  of  circumstances  under  which  it  was 
entered  into.     General  or  indefinite  terms  employed  in  the  eon- 
tract  may  be  thus  explained  or  restricted  in  their  meaning  and 
application;  and  the  contract  must  be  so  construed  as  to  give 
it  such  effect,  and  none  other,  as  the  parties  intended  at  the 
time  it  was  made.    These  principles  are  elementary;  and  apply- 
ing them  to  the  terms  of  the  bond,  when  those  terms  are  con- 
sidered in  reference  to  the  facts  of  the  case,  there  would  seem 
to  be  no  doubt  of  the  correctness  of  the  ruling  of  the  court  below. 
As  we  have  said,  regard  must  be  had  to  the  intention  of  the 
parties  when  the  bond  was  executed ;  and  whatever  facts  will  shed 
light  upon  the  question  of  intention  may  be  considered  in  con- 
struing the  bond.     Mumford  v.  Railroad  Co.,  supra.     Hence 
we  may  look  to  the  position  held  in  the  bank  by  Lisle  at  the 
time  the  bond  was  given.    He  had  been  appointed  assistant  book- 
keeper, and  it  was  with  reference  to  that  appointment  that  the 
bond  was  given  to,  and  accepted  by,  the  bank.     The  bond  re- 
cites the  fact  that  Lisle  had  been  appointed  a  clerk  in  the  bank, 
and  the  extrinsic  facts  identify  the  clerkship  as  that  of  assist- 
ant bookkeeper.     That  position,  however,  had  not  at  the  time 
of  the  bond  given,  and  has  never  had,  any  of  the  duties  and 
functions  pertaining  to  it  that  pertain  to  the  position  of  note 
teller  and  discount  clerk,  to  which  Lisle  was  subsequently  ap- 
pointed.  This  latter  position  was  one  entirely  different  from  that 
of  bookkeeper,  and  was  of  great  responsibility,  and,  from  its  very 
nature,  was  of  much  greater  risk  and  peril  to  the  surety  than 
the  former  position  held  by  Lisle.    It  is  true,  the  terms  of  the 


STATE  v.  SWINNEY.  449 

condition  of  the  bond  are  very  large  and  comprehensive,  but  they 
all  have  reference  to  the  previous  appointment  as  clerk.  By  the 
terms  of  the  bond  it  was  certainly  competent  to  the  board  of  di- 
rectors, or  to  the  president  or  cashier,  to  impose  additional  con- 
sistent duties  upon  Lisle  to  those  then  pertaining  to  the  position 
of  bookkeeper;  but  not  to  impose  duties  upon  him  that  would 
entirely  change  the  nature  and  grade  of  his  position  in  the  bank, 
and  enhance  his  responsibility,  and  thereby  essentially  increase 
the  risk  to  the  surety  on  his  bond.  This  could,  only,  be 
the  assent  of  Jhe  surety,  and  it  is  not  pretended  that  such  as- 
sent was  ever  obtained.  And  this  is  strictly  in  accordance  with 
the  principle  maintained  by  this  court  in  the  case  of  Straw- 
bridge  v.  Eailroad  Co.,  14  Md.  360.  In  that  case  it  was  held 
that  the  surety  was  not  exonerated;  but  it  was  so  held  because 
it  was  found  that  the  nature  of  the  agent's  duties  were  not 
changed,  and  no  new  or  different  duty  was  imposed  upon  him 
by  the  alteration  in  the  regulations  of  the  company  at  the  partic- 
ular station.  Indeed,  it  was  conceded  by  the  court  that,  if  the 
employment  and  duties  of  the  agent  had  been  essentially  changed, 
the  surety  would  not  have  been  liable;  and  no  well-considered 
case  has  been  cited  that  gives  sanction  to  a  different  principle. 

It  follows  from  what  we  have  said  that  the  judgment  below 
must  be  affirmed. 


c.    A  change  of  duty  imposed  by  statute  does  not  discharge  the 
surety. 

STATE  v.  SWINNEY.     1882. 
60  Miss.  39;  45  Am.  Eep.  405. 

Appeal  from  the  circuit  court  of  Holmes  county. 

Hon.  C.  H.  CAMPBELL,  J.  On  the  13th  of  March,  1882,  an 
action  was  brought  in  the  name  of  the  State,  suing  for  the  use 
of  Holmes  county,  against  J.  S.  Hoskins  and  his  sureties,  on  his 
bond  as  tax  collector  of  that  county,  for  two  several  sums  of 
money,  for  the  years  1876  and  1877  respectively,  which,  it  was 
declared,  he  had!  'eoflected'and  failed  to  pay  over  to  the  treas- 
urer of  the  county  as  the  law  required  of  him  and  as  he  was 
bound  by  the  terms  of  his  bond  to  do. 

29 


450  FIDELITY  BONDS. 

The  third  plea  set  up  the  defence  that  "after  the  signing  of 
said  bond  by  said  defendants,  the  said  plaintiff,  without  the 
consent  of  the  said  defendants,  on  the  twelfth  day  of  January, 
1877,  by  an  act  of  the  Legislature  of  the  State  of  Mississippi, 
approved  on  said  day  and  entitled  'An  act  to  provide  for  the 
collection  of  the  outstanding  revenue  for  the  fiscal  year  1876,' 
altered,  changed,  and  extended  the  time  for  the  collection  of 
taxes  due  the  State  of  Mississippi  and  the  county  of  Holmes,  and 
the  time  for  the  payment  thereof  by  the  said  Hoskins  to  the 
State  and  county  treasuries;  whereby  said  defendants  were  re- 
leased as  sureties  on  said  bond." 

The  fourth  plea  contained  the  same  defence  as  the  third,  ex- 
cept that  the  act  of  the  legislature  relied  upon  in  the  latter  as 
releasing  the  defendants  as  sureties  on  the  bond  was  an  act 
entitled:  "An  act  in  relation  to  the  public  revenue  and  for  other 
purposes, ' '  approved  February  1,  1877.  To  the  third  and  fourth 
pleas  demurrers  were  filed  and  they,  too,  were  overruled.  The 
plaintiff  declined  to  plead  over  and  appealed  to  this  court. 

CAMPBELL,  C.  J.,  delivered  the  opinion  of  the  court. 

We  decline  to  follow  the  courts  of  Illinois,  Tennessee  and  Mis- 
souri, in  their  views  that  sureties  on  the  bond  of  a  tax  collector 
are  discharged  by  an  act  of  the  legislature  passed  after  the 
execution  of  the  bond,  without  their  consent,  giving  further  time 
for  the  collection  of  taxes  and  settlement  by  the  officer,  and  we 
embrace  and  declare  the  more  just  and  politic  doctrine  of  the 
courts  of  Virginia,  Maryland,  and  North  Carolina,  and  hold  that 
the  official  bond  of  the  tax  collector  is  given  with  a  full  knowl- 
edge of  the  right  of  the  legislature  to  alter  the  dates  fixed  by 
law  for  the  collection  of  taxes  and  the  settlement  of  the  col- 
lector, and  subject  to  the  exercise  of  that  right  at  the  pleasure 
of  the  legislature,  without  the  assent  of  the  sureties.  The  Com- 
monwealth v.  Holmes,  25  Gratt  771;  Smith  v.  The  Common- 
wealth, 25  Gratt  780;  The  State  v.  Carleton,  1  Gill  249;  Prairie 
v.  Worth,  78  N.  C.  169.  See  also  Smith  v.  Peoria,  59  111.  412 ; 
Bennett  v.  The  Auditor,  2  W.  Va.  441 ;  Cooley  on  Tax,  502. 

The  demurrer  to  the  third  and  fourth  pleas  should  have  been 
sustained. 


SINGER  MFG.  CO.  v.  LITTLER.  451 


d.  Sureties  on  a  fidelity  bond  are  entitled  to  reasonable  notice 
of  the  principal's  default  and  failure  to  give  such  notice  will 
discharge  sureties. 

SINGER  MAN'FG  CO.  v.  LITTLER.    1881. 
56  Iowa  601;  90  N.  W.  Rep.  905. 

Appeal  from  Wapello  circuit  court. 

Action  at  law.  The  cause  was  tried  to  the  court  below  without 
a  jury,  and  judgment  was  rendered  for  defendants.  Plaintiff 
appeals.  The  facts  of  the  case  appear  in  the  opinion. 

BECK,  J.  1.  The  action  is  upon  a  bond  executed  by  Littler 
as  principal,  and  the  other  defendants  "as  sureties,  conditioned 
that  Littler  shall  pay  to  plaintiff  all  his  indebtedness  to  it, 
existing  before  or  afterwards  to  exist,  whether  upon  notes,  ac- 
counts, or  in  any  other  manner.  The  petition  alleges  that  Littler 
became  agent  of  plaintiff  for  the  sale  of  sewing  machines,  and 
the  bond  in  suit  was  executed  when  he  was  appointed,  to  secure 
plaintiff  from  loss  that  might  accrue  on  account  of  his  employ- 
ment. The  petition  alleges  that  Littler  became  delinquent  in  his 
payments  and  executed  a  note  to  plaintiff,  upon  which  a  judg- 
ment was  afterward  rendered  for  the  amount  of  his  indebtedness. 
The  sureties  answered  the  petition,  alleging  that  Littler  and  the 
plaintiff  entered  into  an  agreement  whereby  Littler  became  plain- 
tiff's agent,  and  became  bound  to  pay  to  plaintiff  money  upon 
the  sales  of  sewing  machines,  or  upon  the  indorsement  of  paper 
taken  upon  such  sales,  as  stipulated  in  the  agreement.  The 
agreement  provides  that  either  party  may  terminate  the  con- 
tract at  their  pleasure.  Other  conditions  need  not  be  set  out. 

The  answer  further  alleges  that  plaintiff  had  terminated  Lit- 
tier's  agency  before  the  note  was  executed  by  him,  and  that  the 
defendants  had  no  notice  at  any  time  that  Littler  was  in  default, 
or  that  any  claim  was  made  by  plaintiff  against  them  upon  the 
bond.  Upon  a  demurrer  to  this  answer,  the  court  held  that 
the  defendants  were  entitled  to  notice  of  the  amount  due  from 
Littler  within  a  reasonable  time  after  the  settlement  between 
him  and  plaintiff.  The  court  found  upon  the  trial  that  no  such 
notice  was  given  to  the  defendants,  wherefore  they  suffered  loss, 
and  that  plaintiff,  therefore,  is  not  entitled  to  recover. 


452  FIDELITY  BONDS. 

2.  The  controlling  question  in  the  case,  and  the  only  one 
argued  by  counsel,  involves-  the  correctness  of  the  court 's  ruling 
in  holding  that  defendants  are  not  liable  for  the  reason  that 
notice  was  not  given  them  of  the  extent  of  Littler 's  liability 
.within  a  reasonable  time  after  his  agency  was  terminated^  and 
his  indebtedness  fixed  by  his  settlement  with  plaintiff.    The  rul- 
ing of  the  court,  we  think,  is  correct,  and  in  accord  with  Davis 
Sewing  Machine  Co.  v.  Mills,  8  N.  W.  356.    We  held  in  that 
case,  "where  the  guaranty  is  a  continuing  one,  and  the  parties 
must  have  understood  their  liability  thereunder  would  be  in- 
creased and  diminished  from  time- to  time,  and  the  guaranty  is 
uncertain  as  to  when  it  will  cease  to  be  binding  upon  the  guar- 
antor, and  when  the  party  indemnified  has  the  power  at  pleasure 
to  annul  and  put  an  end  to  the  contract  ^guaranteed^  without 
the  knowledge  of  the  guarantor,  he  is  entitled  to  notice,  within 
a  reasonable  time  after  the  transactions  guaranteed  are  closed, 
of  the  amount  of  his  liability  thereunder. ' '    It  will  be  observed, 
upon  considering  the  statement  of  the  terms  of  the  contract 
guaranteed  as  above  set  out,  that  they  are  within  this  rule,  and 
that  under  it  the  defendants  in  this  case  are  not  liable,  in  the 
absence  of  the  notice  contemplated  therein. 

3.  But  counsel  for  plaintiff,  in  an  ingenious  argument,  at- 
tempt to  distinguish  this  case  from  Davis  Sewing  Machine  Co. 
v.  Mills.    They  insist  that  while  the  contract  in  that  case  was  a 
guaranty,  in  this  case  defendants  are  not  guarantors,  but  are 
sureties  for  Littler,  and  are  jointly  liable  with  him  upon  an 
original  contract.    The  error  of  this  position  is  apparent.    Littler 
was  or  was  about  to  become  indebted  to  plaintiff  upon  the  con- 
tract under  which  he  was  appointed  agent.    Defendants  were  not 
bound  upon  that  contract.    Neither  were  they  bound  upon  the 
notes,  accounts,  acceptances,  or  upon  any  contract  upon  which 
Littler  became  indebted  to  plaintiff.    They  became  first  and  only 
bound  upon  the  bond,  whereby  they  guaranteed  that  Littler 
would  pay  his  indebtedness  to  plaintiff  in  whatever  form  it  as- 
sumed.   A  guarantor  becomes  bound  for  the  performance  of  a 
prior  or  collateral  contract  upon  which  the  principal  is  alone  in- 
debted.   A  surety  is  bound  with  the  principal  upon  the  contract 
under  which  the  principal's  indebtedness  arises.     This  is  a  fa- 
miliar doctrine  of  the  law.    Upon  applying  it  to  the  facts  of  the 
case,  it  will  be  seen  that  defendants  are  guarantors,  and  not 
sureties,  for  the  performance  of  the  contract  upon  which  Littler 's 


SAINT  v.  WHEELER.  453 

indebtedness  to  plaintiff  arose.  They  were  therefore  entitled  to 
notice  under  the  rule  of  Davis  Sewing  Machine  Co.  v.  Mills. 

It  may  be  observed  that  guarantors  are  often  called  sureties. 
We  use  the  term  "sureties"  in  the  foregoing  discussion,  to  de- 
scribe one  who  is  bound  by  a  contract  with  his  principal — who 
joins  with  his  principal  in  the  execution  of  the  contract,  and 
becomes  pecuniarily  liable  thereon.  But,  as  we  have  seen,  a 
guarantor — the  surety  in  a  contract  of  guaranty — is  not  primari- 
ly liable  upon  the  principal's  contracts,  and  only  becomes  liable 
upon  his  default.  A  guarantor,  under  this  rule,  is  entitled  to 
notice  of  the  amount  of  his  liability  within  a  reasonable  time 
after  that  liability  is  determined  by  the  transaction  between  the 
original  debtor  and  creditor. 

It  is  our  opinion  that  the  judgment  of  the  circuit  court  ought 
to  be  affirmed. 


e.  If  obligee  retains  principal  in  service  after  lie  has  knowledge 
of  his  default  it  will  relieve  sureties  from  liability  for  subse- 
quent defaults. 

SAINT  v.  WHEELER.     1891. 
95  Ala.  362;  36  Am.  St.  Eep.  210;   10  So.  Rep.  539. 

Action  by  the  Wheeler  and  Wilson  Manufacturing  Company, 
a  corporation,  to  recover  the  sum  of  eight  hundred  dollors  col- 
lected for  it  by  R.  F.  Saint  while  employed  by  it  as  a  collector, 
which  sum  he  failed  to  pay  on  demand.  The  action  was  founded 
on  a  sealed  contract,  by  which  the  plaintiff  agreed  to  employ 
said  Saint  as  its  collector,  and  the  defendants  R.  F.  Saint,  A. 
J.  Crossthwaite,  C.  M.  Wright,  J.  F.  Hall,  and  J.  R.  Spraggins 
bound  themselves  in  the  sum  of  one  thousand  dollars  for  the 
faithful  performance  by  said  Saint  of  all  duties  as  collector 
for  plaintiff.  Judgment  for  the  plaintiff,  and  the  defendants 
appealed. 

MCCLELLAN,  J.  The  contract  sued  on  is  not  a  guaranty,  but 
one  of  suretyship.  Crossthwaite  and  the  other  defendants,  who 
undertake  that  Saint  shall  faithfully  perform  his  contract  with 
the  company,  are  sureties  of  Saint,  and  not  guarantors.  The 


454  FIDELITY  BONDS. 

distinction  between  the  two  classes  of  undertakings  is  often 
shadowy,  and  often  not  observed  by  judges  and  text-writers ; 
but  that  there  is  a  substantive  distinction,  involving  not  infre- 
quently important  consequences,  is,  of  course,  not  to  be  doubted. 
It  seems  to  lie  in  this:  that  when  the  sponsors  for  another  as- 
sume ap_rimary  and  direct  liabilitv,  whether  conditional  or  not 
in  the  sense  of  being  immediate  or  postponed  till  some  subse- 
quent occurrence,  to  the  creditors,  they  are  sureties;  but  when 
this  responsibility  is  secondary  and  collateral  to  that  of  the 
principal,  they  are  guarantors.  Or,  as  otherwise  stated,  if  they 
undertake  to  pay  money,  or  do  any  other  act,  in  the  event  their 
principal  fails  therein,  they  are  sureties;  but,  if  they  assume 
the  performance  only  in  the  event  the  principal  is  unable 
to  perform,  they  are  guarantors.  Or,  yet  another  and  more  con- 
cise statement:  a  surety  is  one  who  undertakes  to  pay  if  the 
debtor  do  not;  a  guarantor,  if  the  debtor  cannot;  the  first  is 
sponsor,  absolutely  and  directly,  for  the  principal's  acts,  the 
latter  only  for  the  principal 's  ability  to  do  the  act :  ' '  the  one 
is  the  insurer  of  the  debt,  the  other  an  insurer  of  the  solvency 
of  the  debtor."  This  is  the  essential  distinction.  There  is 
another  going  as  well  to  its  form.  The  contract  of  suretyship 
is  the  joint  and  several  contract  of  the  principal  and  surety: 
"The  contract  of  the  guarantor  is  his  own  separate  undertak- 
ing, in  which  the  principal  does  not  join."  Indeed,  it  has  been 
held,  pretermitting  all  other  considerations,  that  no  contract 
joined  in  by  the  debtor  and  another  can  be  one  of  guaranty  on 
the  part  of  the  latter  (McMillan  v.  Bull's  Head  Bank,  32  Ind. 
11;  2  Am.  Rep.  323;  10  Am.  Law  Reg.  435,  and  notes),  though 
we  apprehend  that  a  case  might  be  put  involving  only  secondary 
liability  on  the  sponsors,  though  the  undertaking  be  signed  also 
by  the  principal.  However  that  may  be,  it  is  certain  that  in 
most  cases  the  joint  execution  of  a  contract  by  the  principal 
and  another  operates  to  exclude  the  idea  of  a  guaranty,  and 
that  in  all  cases  such  fact  is  an  index  pointing  to  suretyship. 
See  Brandt  on  Suretyship  and  Guaranty,  sees.  1  and  2;  9  Am. 
&  Eng.  Ency.  of  Law,  p.  68 ;  Marberger  v.  Pott,  16  Pa.  St.  9 ; 
55  Am.  Dec.  479 ;  Allen  v.  Hubert,  49  Pa.  St.  259 ;  Reigart  v. 
White,  52  Pa.  St.  438 ;  Kramph  v.  Hatz,  52  Pa.  St.  525 ;  Birdsall 
v.  Heacock,  32  Ohio  St.  177 ;  30  Am.  Rep.  572 ;  18  Am.  Law  Reg. 
751,  and  notes;  Hartman  v.  First  Nat.  Bank,  103  Pa.  St.  581; 


SAINT  v.  WHEELER.  455 

Courtis  v.  Dennis,  7  Met.  510 ;  Kearnes  v.  Montgomery,  4  W.  Va. 
29 ;  Walker  v.  Forbes,  25  Ala.  139,  60  Am.  Dec.  489. 

Applying  these  principles  to  the  bond  sued  on,  the  conclusion 
must  be  tb,at  it  is  not  a  guaranty,  but  a  suretyship,  on  the  part 
of  Crossthwaite,  "Wright,  Hall,  and  Spraggins.  It  is  not  their 
separate  undertaking,  but  the  principal  also  executes  it.  While 
they  employ  the  word  "guarantee,"  they  directly  obligate  them- 
selves along  with  Saint  to  pay,  absolutely  and  wholly  irrespective 
of  Saint's  solvency  or  insolvency,  all  damages  which  may  result 
to  the  obligee  from  his  default.  Not  only  so,  but  they  expressly 
stipulate  that  the  company  need  not  exhaust  its  remedies  against 
Saint  before  proceeding  against  them.  It  is,  in  other  words, 
and  in  short,  a  primary  undertaking  on  their  part,  not  secondary 
and  collateral,  to  pay  to  the  company  in  the  event  of  Saint's 
failure,  and  not  an  undertaking  to  pay  only  in  the  event  of 
Saint 's  default  and  inability  to  pay.  They  are  sureties  of  Saint, 
and  not  his  guarantors,  and  their  rights  depend  upon  the  law 
applicable  to  the  former  relation,  and  not  upon  the  law  con- 
trolling the  latter. 

2.  One  of  the  important  differences  in  the  operation,  effect 
and  discharge  of  the  two  contracts  finds  illustration  in  this  case.  _ 

The  undertaking  of  guaranty  in  a  case  like  this  is  primarily  an  \£ 
offer,  and  does  not  become  a  binding  obligation  until  it  is  ac- 
cepted, and  notice  of  acceptance  has  been  given  to  the  guarantor. 
Till  this  has  been  done,  it  cannot  be  said  that  there  has  bscn 
that  meeting  of  the  minds  of  the  parties  which  is  essential  to 
all  contracts:  Davis  Sewing  Machine  Co.  v.  Richards,  115  U. 
S.  524 ;  Walker  v.  Forbes,  25  Ala.  139 ;  60  Am.  Dec.  489.  Being 
thus  a  mere  offer,  it  may  be  recalled,  as  of  course,  at  any  time 
before  notice  of  acceptance.  Indeed,  there  are  authorities  which 
hold  that,  even  after  acceptance  and  notice  thereof,  the  guar- 


antor may  revoke  it  by  noticejbhat  he  will  be  no  longer  bound, 
unless  he  has  received  a  continuing  or  independent  consideration 
which  he  does  not  renounce,  or  unless  the  guarantee  has  acted 
upon  it  in  such  a  way  as  that  revocation  would  be  inequitable 
and  to  his  detriment;  and,  in  cases  of  continuing  guaranty,  the 
effect  of  such  revocation  is  to  confine  the  guarantor's  liability 
to  past  transactions:  2  Parsons  on  Contracts  30;  Allan  v.  Ken- 
ning, 9  Bing.  618;  Offord  v.  Davies,  12  Com.  B.,  N.  S.,  748; 
Tischler  v.  Hofheimer,  83  Va.  35. 

All  this  is  otherwise  with  respect  to  the  contract  of  surety. 


456  FIDELITY  BONDS. 

He  is  bound  originally  in  all  respects  upon  the  same  footing 
as  the  principal.  His  is  not  an  offer  depending  for  efficacy 
upon  acceptance,  but  an  absolute  contract  depending  for  efficacy 
upon  complete  execution,  and  its  execution  is  completed  by  de- 
livery. From  that  moment  his  liability  continues  until  dis- 
charged in  accordance  with  stipulations  of  the  instrument,  or 
by  some  unauthorized  act  or  omission  of  the  obligee  violative  of 
his  rights  under  the  instrument,  or  by  a  valid  release.  Nothing 
that  he  can  do  outside  of  the  letter  of  the  bond  can  free  him 
from  the  duties  and  liabilities  it  imposes.  He  cannot  assert  the 
right  to  revoke,  unless  the  right  is  therein  nominated.  As  was 
said  by  the  English  court,  "if  he  desired  to  have  the  right  to 
terminate  his  suretyship  on  notice,  he  should  have  so  specified 
in  his  contract ' ' ;  Calvert  v.  Gordon,  3  Man.  &  R.  124 ;  Brandt 
on  Suretyship  and  Guaranty,  §§  113,  114. 

3.  The  evidence  here  as  to  the  release  of  Crossthwaite  tends 
to  show  no  more  than  this:    that  after  the  bond  had  been  de- 
livered to  plaintiff,  and  after  its  officers  had  advised  Saint  that 
they  were  ready  for  him  to  enter  on  the  discharge  of  his  duties 
under  the  contract  secured  by  the  bond,  he,  Crj3ss_thwjii£e_j^: 

_quested  plaintiff  to  take  his  name  off  th.e  paper.  No  assent  to 
this  request  is  shown,  but  only  an  inquiry  on  the  part  of  plaintiff 
as  to  Crossthwaite 's  reasons  for  desiring  to  be  released.  It 
would  seem  that  the  court  itself  should  have  decided  that  these 
facts  did  not  release  Crossthwaite;  but  the  question  appears  to 
have  been  submitted  to  the  jury.  If  this  submission,  or  any  of 
the  instructions  accompanying  it,  was  erroneous,  no  injury  re- 
sulted to  defendants,  since  the  jury  determined  the  point  against 
the  alleged  release,  as  the  court  should  have  done,  assuming  it  to 
have  been  a  question  of  law.  On  the  other  hand,  if  it  were  a 
question  for  the  jury,  it  is  to  be  presumed  they  were  properly 
instructed  as  to  the  rules  of  law  which  should  guide  them  to  its 
solution,  as  no  exceptions  were  reserved  in  that  regard. 

4.  The  exceptions  which  were  reserved  on  this  part  of  the 
case  are  to  charges  given,  and  to  the  refusal  to  give  charges 
asked  by  defendants,  declaratory  of  the  effect  which  the  dis- 
charge of  Crossthwaite,  if  the  jury  found  he  had  been  discharged, 
would  have  upon  the  liability  of  his  sureties.    As  the  jury  found 
expressly  that  he  had  not  been  discharged,  these  exceptions  pre- 
sent mere  •  abstractions  not  necessary  to  be  decided.     We  have 
no  doubt,  however,  but  that  the  law  in  this  respect  was  correctly 


SAINT  v.  WHEELER.  457 

declared  by  the  court  to  be,  that  the  release  of  Crossthwaite 
operated  to  release  the  other  sureties  n^lyJ^n^thft^jftytfj^n^lhiJH^ 
aliquot  share  of  the  liability;  Brandt  on  Suretyship  and  Guar- 
anty,  §  383 ;  Burge  on  Suretyship,  386 ;  Klingensmith  v.  Klingen- 
smith,  31  Pa.  St.  460;  Ex  parte  Gifford,  6  Ves.  805;  Schock  v. 
Miller,  10  Pa.  St.  401;  Currier  v.  Baker,  51  N.  H.  613;  Jemison 
v.  Governor,  47  Ala.  390. 

5.  The  sureties  of  Saint  insisted  on  the  trial  below  that  they 
were  discharged  from  all  liability  on  the  bond  by  reason  of 
certain  alleged  changes  made  in  the  original  contract  between 
their  principal  and  the  company  by  the  parties  thereto,  after 
they  became  sureties  for  its  faithful  performance,  and  without 
their  knowledge,  consent,  or  ratification.  It  is  not  pretended  that 
the  paper  writing  evidencing  this  contract  was  ever  altered  in 
any  respect,  but  that  its  terms  were  changed  by  subsequent  parol 
agreements,  in  the  following  respects,  among  others  to  be  pres- 
ently considered :  1.  That  under  this  contract,  which  constituted 
Saint  a  collector  only  for  the  company,  he  was  instructed  and 
required  to  take  up  and  resell  sewing-machines,  when  he  found 
the  notes  for  the  purchase  money  of  the  same,  and  which  were 
in  his  hands  for  collection,  could  not  be  collected ;  and,  2.  That 
he  was  authorized  to  discount  or  sell  the  notes  placed  in  his 
hands  for  collection,  when  the  same  could  not  be  otherwise  real- 
ized upon.  Nothing  is  claimed  in  this  action  on  account  of 
Saint's  misconduct  in  respect  of  any  property  thus  taken  up  or 
resold,  or  of  any  note  discounted  by  him,  or  with  respect  to 
the  proceeds  of  any  such  sale  or  discount.  If  these  duties  were 
such  as  usually  devolved  upon  a  collector  for  a  sewing-machine 
company — as  to  which  there  is  no  evidence  in  this  record,  and 
no  necessity  for  any  under  the  present  complaint — it  may  be 
that  Saint's  sureties  would  be  responsible  for  their  faithful  per- 
formance on  his  part  to  the  same  extent  as  for  money  collected 
on  notes  in  his  hands:  Detroit  Sav.  Bank  v.  Ziegler,  49  Mich. 
157 ;  43  Am.  Rep.  456. 

However  that  may  be,  the  fact  that  they  were  imposed  upon 
him,  assuming  they  were  not  covered  by  his  contract,  and  hence 
were  in  addition  to  those  assumed  by  the  other  defendant,  can- 
not relieve  his  sureties  from  liability  with  respect  to  those  which 
were  imposed  by  the  contract,  unless  the  imposition  of  these 
new  duties  and  their  performance  by  Saint  rendered  impossible, 
or  materially  hindered  or  impeded,  the  proper  and  faithful  per- 


458  FIDELITY  BONDS. 

formance  of  the  service  originally  undertaken.  There  is  no  evi- 
dence here  that  these  new  and  additional  duties  interfered  with 
the  collection  of  notes  placed  in  his  hands  for  that  purpose ;  nor 
is  any  claim  made  against  his  sureties  on  account  of  any  failure 
to  collect  such  notes.  But  the  gravamen  of  the  action  is,  that  he 
1.  Did  collect  these  notes,  and  converted  the  proceeds  to  his 
own  use ;  or  2.  That  he  failed  to  deliver  such  notes  to  the  com- 
pany on  the  termination  of  his  employment.  We  are  unable 
to  conceive  how  the  fact  that  he  had  other  property  and  funds — 
machines  and  the  proceeds  of  discounted  notes — in  his  posses- 
sion, could  have  hindered  or  impeded  him  in  the  account  for 
funds  collected  or  notes  remaining  in  his  hands,  or  could  in  any 
degree  have  conduced  to  his  conversion  of  such  funds  or  notes. 
To  the  contrary,  it  would  seem,  in  all  reason,  that  the  possession 
of  this  other  property  and  these  other  funds,  out  of  which  he 
might  have  met  the  necessities  which  presumably  induced  his 
malversions,  would  have  lessened  the  chances  of  misappropria- 
tion of  the  funds  and  property  for  which  his  sureties  were  re- 
sponsible, and  thus  have  lessened,  instead  of  increased,  their  ex- 
posure to  liability.  We  are  very  clear  to  the  conclusion,  that 
\\  the  imposition  of  these  new  duties  not  covered  by  the  contract 
\\  did  not  discharge  the  sureties  with  respect  to  those  embraced 
\\  in  the  contract,  and  as  to  which  no  change,  in  the  particulars 
Viwe  are  considering,  was  attempted:  Mayor  of  New  York  v. 
Welly,  98  N.  Y.  467,  50  Am.  Rep.  699 ;  People  v.  Vilas,  36  N.  Y. 
459,  93  Am.  Dec.  520 ;  Home  Life  Ins.  Co.  v.  Potter,  4  Mo.  App. 
594;  Commonwealth  v.  Holmes,  25  Gratt.  771;  Home  Savings 
Bank  v.  Traube,  75  Mo.  199,  42  Am.  Rep.  402 ;  Gaussen  v.  United 
States,  97  U.  S.  584 ;  Jones  v.  United  States,  18  Wall.  662 ;  Ryan 
v.  Morton,  65  Tex.  258 ;  First  Nat.  Bank  v.  Gerke,  68  Md.  449, 
6  Am.  St.  Rep.  453,  and  note  458 ;  Detroit  Sav.  Bank  v.  Ziegler, 
49  Mich.  157,  43  Am.  Rep.  456. 

6.  The  sureties  further  defended  on  the  ground  that  the  con- 
tract between  Saint  and  the  company  was  changed,  without  their 
knowledge  or  assent,  by  a  subsequent  parol  agreement  entered 
into  by  their  principal  and  Walls,  representing  the  company, 
whereby  Saint 's  compensation  was  to  be  reduced,  from  fifty  dol- 
lars per  month  to  nine  dollars  per  week.  There  was  evidence 
of  such  agreement,  but  none  that  it  was  supported  by  a  consid- 
eration, or  that  it  was  approved  by  plaintiff.  And  it  appears 
from  other  evidence  that  all  of  Wall's  contracts  were  subject  to 


SAINT  V.  WHEELER.  459 

approval  or  rejection  by  other  officers  of  the  corporation,  and 
that  plaintiff  settled  with  Saint  on  a  basis  as  to  compensation 
of  fifty  dollars  per  month.  We  think  on  these  facts,  this  defense 
is  without  merit:  Steele  v.  Mills,  68  lov/a  406. 

Equally  untenable,  in  our  opinion,  is  the  defense  which  pro- 
ceeds on  the  ground  that  the  j.nstruction_of  pJaintiff-taJsIa  int. 
to  retain  his  s^ftTT  *ffl(!  f  IBf*"*"**  mit  °f  collections  made  by  him 
was  a  material  change  of  the  provision  of  the  contract  which 
required  him  to  remit  to  the  company  on  the  first  day  of  each, 
week,  the  amount  collected  up  to  that  day.  The  contract  pro- 
vided for  Saint's  compensation  and  expenses,  but  was  silent  as 
to  the  manner  of  payment.  The  method  of  payment  thus  adopted 
tended  to  decrease  the  risks  of  the  sureties,  as  affording  less 
occasion  for  conversion  by  Saint  than  had  payments  to  him  been 
made  only  at  the  end  of  each  month. 

7.  It  is  well  settled,  that  mere  indulgence  of  the^  creditor  to 
the  principal,  the  mere  forbearance  to  take  steps  to  enforce  a 
liability  upon  default,  or  even  an  understanding  between  them 
looking  to  payment  of  the  deficit  presently  due  at  some  time  in 
the  future,  which  does  not,  for  the  want  of  a  consideration  to 
support  it,  or  other  infirmity,  prevent  the  creditor  from  immedi- 
ately demanding  payment,  will  not  discharge  the  surety.    Hence, 
what  took  place  between  Walls  and  Saint  in  February,  1888, 
in  regard  to  allowing  the  latter  further  time  to  make  good  the 
sum  he  had  theretofore  converted,  afforded  no  defense  to  the  sure- 
ties with  respect  to  the  sum  then  due:    3  Brickell's  Digest,  p. 
715,  §§  36-43;  9  Am.  &  Eng.  Ency.  of  Law,  p.  83,  n.  4;  Morris 
Canal,  etc.  Co.  v.  Van  Vorst,  21  N.  J.  L.  100. 

8.  The  sureties,  however,  on  another  aspect  of  the  transaction 
last  above  referred  to  between  Saint  and  Wells,  predicate  a  de- 
fense going  to  the  amount  of  their  liability.     They  insist  that 
Saint  was  at  that  time  a  defaulter  by  embezzlement ;  that  Walls 
knew  this  fact,  and,  without  giving  any  notice  of  it  to  them,  he, 
acting  for  the  company,  continued  Saint  in  its  employment,  and 
committed  other  funds  to  him  which  were  also  converted;    and 
that  this  action  of  Walls  discharged  them  from  all  liability  for 
funds  thus  converted  after  he  knew  of  Saint's  dishonesty.    The 
general  principle  here  relied  on,  finds  abundant  support  in  the 
authorities.     In  the  leading  case  of  Phillips  v.  Foxall,  L.  R.  7 
Q.  K  666,  the  proposition  is  thus  stated  by  QT^N,  J. :  "We  think 
that  in  a  case  of  continuing  guaranty  for  the  honesty  of  a  serv- 


460  FIDELITY  BONDS. 

ant,  if  the  master  discovers  that  the  servant  has  been  guilty  of 
acts  of  dishonesty  in  the  course  of  the  service  to  which  the  guar- 
anty relates,  and  if,  instead  of  dismissing  the  servant,  as  he  may 
do  at  once  and  without  notice,  he  chooses  to  continue  in  his 
employ  a  dishonest  servant,  without  the  knowledge  and  consent 
of  the  surety,  express  or  implied,  he  cannot  afterwards  have 
recourse  to  the  surety  to  make  good  any  loss  wnich  may  arise 
from  the  dishonesty  of  the  servant  during  the  subsequent  serv- 
ice. ' '  And  this  proposition  is  rested  upon  considerations  which, 
to  our  minds,  are  eminently  satisfactory.  Premising  that  had  a 
default  involving  dishonesty,  and  occurring  before  the  surety  be- 
came bound,  been  known  to  the  creditor,  and  concealed  by  him 
from  the  surety,  the  effect  would  have  been  to  discharge  the 
surety,  a  doctrine  which  appears  to  be  well  established,  the  court 
proceeds  to  declare  the  same  result  from  a  concealment  of  dis- 
honesty pending  a  continuing  guaranty,  as  follows:  "One  of 
the  reasons  usually  given  for  the  holding  that  such  a  conceal- 
ment (at  the  time  the  surety  enters  into  the  obligation)  would 
discharge  the  surety,  is  that  it  is  only  reasonable  to  suppose  that 
such  a  fact,  if  known  to  him,  would  necessarily  have  influenced 
his  judgment  as  to  whether  he  would  enter  into  the  contract  or 
not;  and  in  the  same  manner,  it  seems  to  us,  equally  reasonable 
to  suppose  that  it  never  <jould  have  entered  into  .the  contempla- 
tion of  the  parties  that,  after  the  servant's  dishonesty  in  the 
service  had  been  discovered,  the  guaranty  should  continue  to 
apply  to  his  future  conduct,  when  the  master  chose,  for  his  own 
purposes,  to  continue  the  servant  in  his  employ  without  the 
knowledge  or  assent  of  the  surety.  If  the  obligation  of  the  surety 
is  continuing,  we  think  the  obligation  of  the  creditor  is  equally 
so,  and  that  the  representation  and  understanding  on  which  the 
contract  was  originally  founded  continue  to  apply  to  it  during 
its  continuance,  and  until  its  termination."  The  citations  di- 
rectly supporting  this  conclusion  are  quasi  dicta  of  Lord  Redes- 
dale  in  Smith  v.  Bank  of  Scotland,  1  Dow.  287,  and  of  Malins, 
V.  C.,  in  Burgess  v.  Eve,  13  L.  R.  Eq.  450;  but  the  case  was 
subsequently  followed  in  England  and  the  United  States,  and 
nowhere  abstractly  doubted.  We  follow  these  authorities,  and 
adopt  their  conclusions  as  sound  in  principle:  Sanderson  v. 
Aston,  L.  R.  8  Exch.  73 ;  Brandt  on  Suretyship  and  Guaranty, 
§  368 ;  Roberts  v.  Donovan,  70  Gal.  108 ;  Charlotte  etc.  R.  R.  Co. 
y.  Gow,  59  Ga.  685 ;  27  Am.  Rep.  403 ;  Atlantic  etc.  Tel.  Co.  v. 


SAINT  v.  WHEELER.  461 

Barnes,  64  N.  Y.  385;  21  Am.  Kep.  621;  Newark  v.  Stout,  52 
N.  J.  L.  35. 

9.  Indeed,  the  foregoing  doctrine  is  not  controverted  in  this 
case;  but  it  is  contended  that  it  has  no  application  as  between 
a  corporation,  being  the  creditor,  and  the  surety  of  one  of  its 
officers  or  employees.  And  there  are  not  a  few  adjudged  cases 
which  support  this  view.  The  argument  upon  which  this  con- 
clusion is  reached  is,  that  "corporations  can  act  only  by  officers 
or  agents.  They  do  not  guarantee  to  the  sureties  of  one  officer 
the  fidelity  of  the  others.  The  fact  that  there  were  other  un- 
faithful officers  and  agents  of  the  corporation,  who  knew  and 
connived  at  his  (the  principal's)  infidelity,  ought  not  in  reason, 
and  does  not  in  law  or  equity,  relieve  the  sureties  from 
their  responsibility  for  him.  They  undertake  that  he  shall  be 
honest,  though  all  around  him. are  rogues.  Were  the  rule  dif- 
ferent, by  a  conspiracy  between  the  officers  of  a  bank,  or  other 
moneyed  institution,  all  their  sureties  might  be  discharged.  It 
is  impossible  that  a  doctrine  leading  to  such  consequences  can 
be  sound";  Pittsburg  etc.  Ky.  Co.  v.  Shaeffer,  59  Pa.  St.  356; 
Taylor  v.  Bank  of  Ky.,  2  J.  J.  March.  565 ;  McShane  v.  Howard 
Bank,  73  Md.  135 ;  Brandt  on  Suretyship  and  Guaranty,  §  369. 

It  is  to  be  noted  that  these  cases — and  there  may  be  others 
which  follow  them — hold,  not  only  that  where  there  is  a  con- 
spiracy between  officers  of  a  corporation  to  embezzle  its  funds, 
the  dereliction  of  neither  officer  will  discharge  the  sureties  of 
the  other,  but  also  where  there  is  a  negligent  failure  on  the  part 
of  one  such  officer  to  give  notice  to  the  sureties  of  another  of 
his  dishonesty,  and  a  continuance  of  the  dishonest  servant  in 
the  corporate  service  without  the  assent  of  his  sureties  given  with 
a  knowledge  of  the  default,  the  sureties  are  not  discharged  from 
liability  for  subsequent  deficits,  though  confessedly  they  would 
be  were  the  creditor  an  individual  or  copartnership.  It  may 
be  that  the  first  position  stated  is  sound.  It  would  seem  to  be 
immaterial  whether  an  original  default  results  from  the  dis- 
honesty of  the  principal  alone,  or  conjointly  from  his  and  the 
dereliction  of  another  corporate  employee.  The  sureties  are  bound 
to  answer  for  the  results  of  any  form  of  original  dishonesty; 
that  is  what  they  insure  against  It  may  be  too,  doubtless  would 
be,  that  no  concealment  by  a  conspirator  of  the  fact  of  the  prin- 
cipal 's  original  default,  no  continuance  in  the  service  by  an 
officer  of  the  corporation  in  pari  delicto  with  the  principal,  would 


462  FIDELITY  BONDS. 

suffice  to  discharge  the  surety,  since  all  of  this  is  malversion  par- 
ticipated in  by  the  principal,  and  violative  of  the  contract  which 
the  sureties  have  undertaken  to  see  faithfully  performed.  More- 
over, the  acts  and  omissions  of  one  agent  of  a  corporation,  in 
conspiracy  with  another  to  filch  their  common  master,  in  further- 
ance of  their  nefarious  purposes,  are,  in  the  nature  of  things, 
without  authorization  by  implication  or  otherwise,  and  can  in  no 
just  sense  be  said  to  be  acts  of  omissions  of  the  corporation. 
Upon  this  idea,  it  may  be  that  where  one  officer,  though  not  orig- 
inally participating  in  the  default  of  another,  conceals  that  de- 
fault from  the  sureties  of  his  fellow-officer  and  from  the  com- 
pany, for  sinister  purposes  of  his  own,  and  not  as  representing 
his  employer,  or  in  his  interest,  and  continues  the  defaulting 
officer  in  the  service,  the  sureties  would  not  be  discharged  as  to 
subsequent  deficits.  Thus  far  we  may  go  with  the  learned  courts 
in  which  the  cases  we  have  cited  were  decided. 

But  even  our  conservatism  in  following  adjudications  of  courts 
of  acknowledged  ability  and  learning  can  in  no  degree  constrain 
us  to  adopt  the  second  proposition  stated  above.  We  cannot  sub- 
scribe to  the  doctrine,  that  there  is  the  radical  difference  insisted 
on,  or  any  material  difference  in  fact,  between  the  efficacy  of 
acts  and  omissions  of  an  agent  of  a  creditor  corporation,  having 
authority  in  the  premises,  on  the  one  hand,  and  the  acts  and 
omissions  of  the  agent  of  an  individual  creditor,  or  of  the  in- 
dividual himself,  on  the  other,  in  respect  of  condoning  the  defal- 
cation of  any  employee,  omitting  notice  to  the  employee's  sureties, 
and  continuing  him  in  the  service,  to  operate  a  release  of  the 
sureties  as  to  subsequent  deficits  of  the  dishonest  employee.  No 
doctrine  of  the  law  is  more  familiar  than  that  notice  to  an  agent, 
within  the  scope  of  his  agency,  is  notice  to  the  principal;  and 
this  doctrine  has  in  no  connection  been  applied  more  frequently 
and  uniformly  than  to  corporations  and  their  agents.  Indeed, 
there  is  an  absolute  necessity  in  all  cases  for  its  application  to 
corporations,  since  they  act  and  can  be  dealt  with  only  through 
agents.  Notice  to  one  agent  of  a  corporation,  with  respect  to 
a  matter  covered  by  his  agency,  must  be  as  efficacious  as  to  its 
directors  or  to  its -president,  since  these  also  are  only  agents, 
with  larger  powers  and  duties,  it  is  true,  but  not  more  fully 
charged  with  respect  to  the  particular  thing  than  he  whose 
authority  is  confined  to  that  one  thing.  In  the  case  at  bar,  Walls 
had  authority  to  make  the  contract  with  Saint,  subject  to  the 


SAINT  v.  WHEELER.  '  463 

approval  of  another  agent  of  the  corporation.  He  did  in  fact 
make  it.  This  contract  contained  a  provision  for  its  termination 
by  either  party  at  pleasure.  The  evidence  was  that  Walls  had 
full  supervision  over  Saint,  and  over  all  matters  embraced  in 
the  contract  made  by  Saint.  It  was  at  least  a  fair  inference  to 
be  drawn  by  the  jury,  that  he  could  terminate  the  employment 
either  under  the  stipulation  in  the  instrument,  or  for  a  violation 
of  it  by  Saint,  subject  to  the  approval  of  the  other  officer  or 
agent  referred  to.  There  is  no  ground  to  doubt  but  that  to  have 
given  the  sureties  notice  of  Saint's  default  would  have  been  in 
the  line  of  his  duty  and  authority.  Equally  clear  it  must  be, 
that  their  assent  to  him  to  a  continuance  of  Saint's  employment 
would  have  bound  them  for  the  subsequent  defalcation;  and, 
on  the  other  hand,  it  must  be,  that  their  dissent  from  such  con- 
tinuance communicated  to  him  would  have  had  the  same  effect 
as  had  it  been  given  to  any  other  officer  of  the  creditor  company. 
He  had  notice  of  the  default.  He  received  it  as  representing  the 
company.  In  that  capacity,  he  condoned  it,  made  arrangements 
with  Saint  to  make  it  good,  continued  the  employment,  and  con- 
tinued Saint's  opportunities  to  embezzle  the  company's  funds, 
on  the  supposed  security  for  its  reimbursement  afforded  by  the 
obligation  of  the  sureties,  who  had  contracted  on  the  assumption 
of  Saint's  honesty,  and  were  entitled  to  know  of  his  dishonesty 
when  it  should  develop,  as  a  condition  to  their  subsequent  liabil- 
ity. There  is  no  intimation  of  connivance  or  conspiracy  on  the 
part  of  Walls  with  Saint  to  defraud  either  the  creditor  or  the 
sureties.  What  he  did  was  doubtless  done  in  good  faith,  and  for 
the  interest,  as  he  supposed,  of  his  employer.  It  was  in  the  line 
of  his  employment.  If  his  further  duty  was  to  report  his  action 
to  another  officer  of  the  company,  the  presumption  is  that  he 
made  such  a  report;  there  is  nothing  in  the  record  to  rebut 
such  presumption.  We  cannot  hesitate  to  affirm,  on  this  state 
of  the  case,  that  what  he  did  which  ought  not  to  have  been  done, 
and  what  he  failed  to  do  which  ought  to  have  been  done,  were 
the  acts  and  omissions  of  the  corporation,  involving  the  same 
consequences  in  all  respects  as  if  the  corporate  entity  had  been 
capable  of  direct  personal  action,  so  to  speak,  and  had  acted 
as  he  did,  or  as  if  he  himself,  and  not  Wheeler  and  Wilson  Manu- 
facturing Company,  had  been  the  creditor. 

We  suppose  it  would  not  be  contended  in  any  quarter  that  if 
these  sureties  had  in  terms  stipulated  that,  in  case  of  Saint's 


464  FIDELITY  BONDS. 

default,  notice  to  them  and  assent  on  their  part  should  be  a  con- 
dition precedent  to  their  liability  for  further  defaults  they  could 
be  held  without  such  notice  and  assent ;  and  yet,  under  the  doc- 
trine announced  in  the  cases  cited,  such  a  stipulation  would  be 
entirely  nugatory,  and  the  failure  of  every  agent  and  officer,  all 
with  knowledge  of  the  stipulation  and  of  the  default,  to  notify 
the  sureties  thereof  would  avail  them  nothing.  Yet  it  would 
manifestly  be  no  more  the  duty  of  the  corporation  to  give  a 
notice  so  stipulated  for  than  to  give  a  notice  made  a  part  of  the 
contract  by  the  law  of  the  land.  And  such  doctrine,  carried  to 
its  legitimate  results,  would  defeat  all  corporate  liability  growing 
out  of  the  contracts,  acts,  and  omissions  of  agents  clothed  with 
power  and  authority  in  the  premises.  That  it  is  unsound  is 
demonstrated  not  only  in  logic,  but  upon  analogous  authority. 
As  we  have  seen,  the  English  court,  in  the  leading  case  of 
Phillips  v.  Foxall,  L.  R.  7  Q.  B.  666,  which  has  never  been 
called  in  question  there  or  in  this  country,  either  as  to  the  result 
or  the  reasoning  upon  which  it  was  reached,  supported  the  prin- 
ciple declared  upon  the  same  considerations  which  underlie  the 
doctrine  that  if  an  employer  have  knowledge  of  the  previous  dis- 
honesty of  a  servant,  and  accept  a  guaranty  for  his  future  hon- 
esty without  disclosing  such  dishonesty  to  the  surety,  this 
is  a  fraud  upon  the  latter,  and  he  is  not  bound.  Now  suppose 
an  officer  of  a  corporation  charged  with  the  duty  of  finding 
surety  for  another  officer,  knowing  of  such  previous  dishonesty 
on  the  part  of  such  officer,  takes  bond  for  his  faithful  and  honest 
performance  of  the  services  contracted  for  without  giving  the 
surety  notice  of  the  prior  dereliction,  would  not  that  omission 
of  duty  on  his  part  stand  upon  the  same  plane  before  the  law, 
and  involve  precisely  the  same  consequences,  as  if  the  default 
had  occurred  after  the  surety  has  bound  himself,  and  the  officer 
had  then  failed  to  give  him  notice  of  it?  If  the  corporation  is 
not  prejudiced  by  the  omission  in  one  instance,  can  it  be  in  the 
other?  If  the  corporation  is  responsible  for  the  dereliction  of 
its  agent  with  respect  to  notice  of  a  previous  default,  would  it 
not  also  be  responsible  for  its  agent's  failure  to  give  notice  of 
the  subsequent  default?  There  can,  in  our  opinion,  be  but  one 
answer  to  these  questions.  There  can  be  no  possible  difference 
in  the  duty  of  the  agent  and  the  corporation's  liability  for  its 
non-performance  in  the  two  cases.  And  the  law  is  well  settled, 
that  the  failure  of  the  agent  of  a  corporation  to  give  notice  of 


.  SAINT  v.  WHEELER.  "465 

such  previous  dishonesty  avoids  the  obligation  of  the  sureties 
for  future  misconduct.  Singularly  enough,  too,  some  of  the 
cases  holding  this  doctrine  distinctly  and  broadly  were  decided 
by  courts,  those  of  Pennsylvania  and  Kentucky,  which  hold  the 
contrary  view  as  to  notice  of  after-occurring  embezzlement: 
Brandt  on  Suretyship  and  Guaranty,  §§  365-368 ;  Wayne  v.  Com- 
mercial Nat.  Bank,  52  Pa.  St.  344 ;  Graves  v.  Lebanon  Nat.  Bank, 
10  Bush.  23,  19  Am.  Eep.  50;  Franklin  Bank  v.  Cooper,  36 
Me.  179,  39  Me.  542. 

Our  conclusion  on  this  point  is  further  supported  by  the  cases 
of  Charlotte  etc.  R.  R.  Co.  v.  Gow,  59  Ga.  685,  27  Am.  Kep.  403, 
and  Atlantic  etc.  Tel.  Co.  v.  Barnes,  64  N.  Y.  385,  21  Am.  Rep. 
621,  which,  without  discussing  this  point,  in  effect  hold  that  the 
omission  of  an  officer  of  a  corporation  to  notify  a  surety  of  the 
default  of  his  principle  in  a  case  like  this,  and  the  continuance 
by  such  officer  of  the  employment  of  the  principal,  will  discharge 
the  surety  as  to  all. defaults  arising  during  the  subsequent  serv- 
ice. And  in  Newark  v.  Stout,  52  N.  J.  L.  35,  the  New  Jersey 
court,  while  adhering  generally  to  the  doctrine  we  have  been 
criticising,  yet  held  that  if  the  default  and  dishonesty  of  a  mu- 
nicipal officer  be  brought  to  the  attention  of  the  city  council, 
which  is  clothed  with  the  power  to  remove  him,  and  he  is  al- 
lowed to  continue  in  the  service  without  notice  to  and  assent 
on  the  part  of  the  surety,  the  latter  will  be  discharged  from 
liability  as  to  all  subsequent  defaults.  It  does  not  appear  to 
have  been  so  considered  by  that  court,  but  it  is  manifest  that 
this  is  a  radical  departure  from  the  doctrine  held  by  the  Penn- 
sylvania, Kentucky,  Maryland,  and  other  courts,  and  relied  on 
by  appellee  here,  and  goes  strongly  in  support  of  the  contrary 
rule,  which  we  believe  to  be  the  sound  one. 

It  is  also  to  be  noticed  that  much  reliance  is  had  by  the  courts 
holding  that  a  surety  of  one  officer  of  a  corporation  is  not  dis- 
charged by  the  acts  or  omissions  of  another  in  the  particulars 
under  consideration,  on  cases  decided  by  the  supreme  court  of 
the  United  States  in  respect  of  sureties  of  public  officers.  In- 
deed it  would  seem  that  this  whole  doctrine  had  its  inception  in 
this  class  of  cases.  This  can  but  be  considered  an  infirmative 
circumstance  going  to  the  soundness  as  authority  of  those  cases 
which  involve  sureties  of  corporation  officers.  There  is  a  palpable 
and  manifest  distinction  between  the  two  classes  of  cases  bear- 
ing directly  upon  this  question,  which,  while  requiring  the  ap- 

80 


466  FIDELITY  BONDS. 

plication  of  this  rule  to  public  officers,  on  the  grounds  of  public 
policy,  and  that  laches  should  not  be  imputed  to  the  govern- 
ment, does  not  require  its  application  to  officers  of  corporations. 
We  hold  that  if  "Walls,  while  acting  for  the  corporation,  and 
in  the  capacity  of  its  agent,  with  respect  to  the  matters  and  things 
involved  in  Saint's  contract,  received  notice  of  such  a  conversion 
of  its  funds  by  Saint  as  amounted  to  embezzlement,  or  involved 
dishonesty,  and,  without  imparting  this  knowledge  to  the  sure- 
ties, and  receiving  their  assent  thereto,  continued  him  in  the 
service,  that  the  sureties  are  not  liable  for  Saint's  subsequent 
defaults.  Charges  5,  9  and  7,  requested  for  defendants,  when 
referred  to  the  evidence,  were  correct  expositions  of  the  law,  as 
we  understand,  in  this  connection.  The  refusal  of  the  court  to 
give  them  involved  error  which  must  work  a  reversal  of  the  case. 
Most  of  the  other  assignments  of  error  are  covered  by  the  points 
considered  in  the  first  part  of  this  opinion.  Such  of  the  assign- 
ments as  are  not  discussed  have  been  considered,  and  found  to  be 
without  merit. 

The  judgment  is  reversed,  and  the  cause  remanded. 


f.  The  principles  of  construction  applicable  to  insurance  pol- 
icies are  applied  to  fidelity  bonds. 

T.  M.  SINCLAIR  &  CO.  v.  NATIONAL  SURETY  CO.     1906. 
—  Iowa  —;  107  N.  W.  Rep.  184. 

DEEMER,  J.  Prior  to  August  30,  1901,  the  firm  of  Higgins  & 
Ogilvie  was  appointed  by  plaintiff  as  its  broker  or  commission 
merchant  for  Dawson,  in  the  Yukon  district  of  Alaska,  to  handle 
its  meat  products  in  that  district.  The  firm  was  to  receive  the 
goods,  pay  freight  thereon  when  not  prepaid,  care  for  and  dis- 
pose of  the  product  for  cash  or  gold  dust,  and  deposit  from  day 
to  day  the  proceeds  from  sales  in  a  named  bank  at  Dawson  for 
and  on  account  of  plaintiff,  and  to  make  at  least  v  weekly  remit- 
tances to  plaintiff's  representative  at  Portland,  Ore.  Plaintiff 
was  to  pay  freight,  duty,  and  insurance  on  the  goods,  drayage, 
rent  of  warehouse,  furnish  watchman  for  the  goods,  and  to  bill 
them  to  the  firm  f.  o.  b.  Portland,  at  its  jobbing  prices,  freight 
and  other  charges  added.  The  firm  of  Higgins  &  Ogilvie  was 
to  sell  the  goods  at  a  named  price  and  to  guaranty  payment 
of  all  goods  sold.  When  goods  were  sold,  they  were  to  be  billed 
to  the  purchaser  in  triplicate,  one  of  which  was  to  be  mailed  to 


SINCLAIR  v.  NATIONAL  SURETY  CO.  467 

plaintiff  at  Portland,  Ore.,  on  the  day  of  sale  or  delivery  of  the 
goods,  and  when  the  whole  of  any  shipment  should  be  sold  the 
brokers  were  required  to  render  plaintiff  an  "account  sales," 
showing  gross  amount  realized,  deducting  commissions,  expenses, 
etc.,  addressed  to  plaintiff  at  Portland,  Ore. ;  and  no  claims 
were  to  be  allowed  for  damaged  goods,  short  weights,  or  other- 
wise, without  a  statement  of  the  facts,  and  allowances  made 
thereof  either  by  plaintiff  or  the  bank  at  Dawson.  At  the  end 
of  each  month  the  broker  was  to  send  to  plaintiff  at  Portland  an 
account  current,  showing  transactions  for  the  month,  and  a 
weekly  statement  was  also  required  from  the  broker,  showing  the 
amount  of  unsold  goods  and  of  cash  on  hand.  It  was  also  re- 
quired to  furnish  monthly  statements  of  commissions  earned  or 
claimed  by  it.  As  compensation,  the  broker  was  to  receive  one- 
half  the  net  profits  on  the  goods.  The  first  shipment  under  this 
contract  was  made  by  plaintiff  on  May  28,  1901.  For  an  agreed 
premium,  defendant,  a  surety  company,  on  August  31,  1901, 
undertook  to  make  good  any  losses  which  plaintiff  might  sustain 
on  account  of  the  personal  dishonesty  of  Higgins  &  Ogilvie  in 
the  conduct  of  plaintiff's  business  from  July  14,  1901,  to  July 
15,  1902 ;  liability  being  limited  to  the  sum  of  $2,000.  On  the 
16th  day  of  November,  1901,  defendant,  in  consideration  of  an 
increased  premium,  credit  being  given  for  the  unearned  premium 
on  the  original  bond,  increased  the  liability  on  the  bond  to  the 
sum  of  $10,000.  It  is  claimed  that  plaintiff  suffered  loss  on  ac- 
count of  the  personal  dishonesty  of  the  firm  or  of  its  members, 
and  it  asked  judgment  on  each  bond — on  the  first  to  the  full 
amount  thereof,  and  on  the  second  to  the  amount  of  nearly 
$8,500.  The  case  went  to  trial  upon  issue  joined,  resulting  in 
a  verdict  for  plaintiff  in  sum  of  $6,656.20. 

Defendant  admitted  the  execution  of  the  bonds,  but  pleaded 
fraud  in  the  procurement  thereof.  It  also  pleaded  immunity 
from  liability  growing  out  of  a  breach  of  the  brokerage  contract 
by  plaintiff.  It  further  pleaded  plaintiff's  failure  to  make  fre- 
quent audits  and  examinations  of  its  brokers'  accounts,  and 
neglect  to  use  reasonable  steps  and  precautions  to  prevent  any 
act  on  the  part  of  its  brokers  which  would  render  defendant 
liable,  as  it  promised  it  would  do  by  the  terms  of  its  engagement 
with  the  defendant.  It  also  averred  that  whatever  losses  plain- 
tiff suffered  were  due  to  its  own  fault,  and  not  to  the  personal 
dishonesty  of  its  brokers.  Failure  to  furnish  proper  and  timely 


468  FIDELITY  BONDS. 

proofs  of  loss  as  provided  by  the  terms  of  the  bonds  was  also 
relied  upon  as  a  defense.  A  reply  was  filed,  pleading  an  estoppel 
upon  defendant  to  deny  its  liability  on  the  second  bond,  and 
averring  that  plaintiff  had  fully  complied  with  all  the  conditions 
of  the  bonds  in  suit.  After  the  ease  had  been  partially  tried 
defendant  filed  an  amendment  to  its  answer,  setting  up  some 
other  defenses;  but  on  plaintiff's  motion  this  was  stricken,  and 
the  ease  was  finally  tried  upon  the  issues  heretofore  stated. 

It  appears  that  plaintiff  made  five  shipments  of  meats  to  its 
Dawson  brokers.  The  first  left  Seattle  June  6, 1901,  and  amount- 
ed, with  freight  added,  to  $7,926.26 ;  the  second  was  made  August 
5,  1901,  and  amounted  to  $468.80;  the  third,  August  27,  1901, 
amounting  to  $1,456.51 ;  the  fourth  in  September,  1901,  amount- 
ing to  $i,293.02,  and  the  fifth  September  26,  1901,  amounting  to 
$2,916.13.  Higgins  &  Ogilvie  made  no  acknowledgment  of  the 
receipt  of  any  of  the  shipments  after  the  first,  and  it  seems  that 
plaintiff  never  made  any  inquiries  with  reference  thereto  at  any 
time.  The  brokers  did  not  comply  with  the  terms  of  their  con- 
tract with  plaintiff  requiring  them  to  make  daily  deposits  and 
weekly  remittances;  nor  did  they  make  the  required  triplicate 
invoices,  or  account  sales,  nor  weekly  or  monthly  reports.  Plain- 
tiff did  not  make  any  audit  or  examination  of  Higgins  &  Ogil- 
vie's  accounts,  statements,  or  books,  and  no  settlement  has  ever 
been  made  between  them.  It  is  claimed,  however,  that  plaintiff 
suffered  on  account  of  their  personal  dishonesty  to  an  amount 
exceeding  the  verdict  returned  by  the  jury.  The  last  reported 
sale  by  Higgins  &  Ogilvie  was  under  date  of  September,  1901 ; 
and  the  last  deposit  made  by  them  in  the  Canadian  Bank,  save 
one  for  a  gross  sale,  was  of  date  September  10,  1901.  The  ac- 
counts of  sales  did  not  correspond  with  the  deposit  slips  down 
to  the  time  the  bond  was  increased;  there  being  a  shortage  of 
about  $200.  The  first  bond  covered  defalcations  between  July 
14,  1901,  and  July  15,  1902,  and  the  second  was  an  increase  of 
the  first,  and  by  its  terms  covered  the  same  period.  This  new 
bond  or  increase  was  made  on  November  16,  1901,  although  the 
premium  was  not  paid  until  January  8,  1902,  some  23  days  after 
it  was  due.  Higgins  &  Ogilvie  abandoned  the  business  at  Daw- 
son  on  December  4,  1901,  and  turned  the  property  then  in  their 
possession  over  to  one  Driscoll,  and  he,  in  turn,  on  or  about 
March  1st  of  the  next  year,  surrendered  the  same  to  the  Canad- 
ian Bank,  in  which  the  brokers  were  to  make  deposits,  so  that 


SINCLAIR  v.  NATIONAL  SURETY  CO.  469 

Higgins  &  Ogilvie  were  not  in  possession  of  any  of  the  goods 
after  December  4,  1901,  and,  of  course,  defendant  is  not  respon- 
sible for  the  goods  or  their  proceeds  after  that  date.  Nor  is  it 
liable  for  any  defalcations  occurring  before  the  time  covered  by; 
the  first  bond. 

The  alleged  errors  chiefly  relied  upon  relate  to  the  ruling  of 
the  court  denying  to  defendant  the  right  to  amend  its  answer 
during  the  trial,  to  the  instructions  given  and  refused,  and  to 
the  insufficiency  of  the  evidence  to  support  the  verdict.  In  view 
of  the  disposition  made  of  the  case,  it  is  unimportant  that  we 
consider  the  ruling  on  the  amendment  to  the  answer. 

The  first  point  to  which  we  shall  refer  has  relation  to  the 
capacity  in  which  Higgins  &  Ogilvie  were  acting  when  the 
claimed  defalcations  occurred.  The  bond  insures  plaintiff 
against  the  personal  dishonesty  of  Higgins  &  Ogilvie  in  the  per- 
formance of  their  duties  as  plaintiff's  brokers  at  Dawson,  Y.  D. ; 
and  the  petition  alleges  that  the  firm  of  Higgins  &  Ogilvie,  as 
such  brokers,  obtained  the  money  for  which  this  action  is  brought 
through  personal  dishonesty.  This  is  denied  by  defendant  in 
its  answer ;  and  it  is  further  alleged  that  plaintiff  misrepresented 
the  capacity  in  which  Higgins  &  Ogilvie  were  acting,  well  know- 
ing that  they  were  not  acting  as  brokers,  but  that  in  truth  they 
were  commission  merchants  and  not  brokers.  There  is  no  tes- 
timony to  support  the  plea  of  fraud,  save  that  the  original  con- 
tract of  employment  and  the  bonds  are  in  evidence;  and  these 
show  that  the  conduct  of  Higgins  &  Ogilvie  as  brokers  is  guar- 
anteed, and  that  they  were,  in  fact,  entitled  to  and  had  possession 
of  the  goods  under  their  contract  with  plaintiff  appointing  them 
as  its  "brokers  or  commission  merchants."  This  is  not  enough 
to  establish  the  allegation  of  fraud.  But  it  is  said  that  only 
while  acting  as  brokers  was  their  conduct  guaranteed,  and  that 
the  testimony  shows  they  were  not  so  acting  when  the  defalca- 
tions occurred.  It  is  doubtless  true  that  Higgins  &  Ogilvie 
were,  strictly  speaking,  commission  merchants,  and  not  brokers, 
for  they  had  possession  of  and  absolute  control  of  the  merchan- 
dise shipped  them,  and  had  power  to  collect  the  purchase  price 
of  goods  sold.  Edwards  v.  Hoeffinghoff  (C.  C.)  38  Fed.  641; 
Slack  v.  Tucker,  23  Wall.  (U.  S.)  330,  23  L.  Ed.  143;  Braun 
v.  City,  110  111.  194.  A  broker  has  as  a  general  rule  neither 
the  possession  of  the  goods  nor  authority  to  collect  the  purchase 
price  of  those  which  he  sells.  But,  aside  from  this  technical  dis- 


470  FIDELITY  BONDS. 

tinetion  arising  from  the  use  of  names  without  more,  a  broker 
is  in  practice  often  intrusted  with  possession  of  the  property 
and  given  authority  to  collect;  thus  combining  his  character  as 
broker  with  that  of  a  factor  or  commission  man.  Mechem  on 
Agency,  §  980 ;  citing  Barry  v.  Boninger,  46  Md.  59. 

Moreover,  it  appears  in  this  case,  that  defendant  knew  how 
Higgins  &  Ogilvie  were  acting,  and  with  this  knowledge  it  de- 
scribed them  as  brokers  in  the  bond  which  it  wrote  for  itself. 
This  being  true,  it  is  in  no  position  to  say  that  they  were  not 
acting  as  brokers  when  the  default  occurred.  There  was  no 
change  in  their  duties  and  responsibilities  at  any  time,  and,  as 
defendant  chose  its  own  language  in  which  to  describe  them,  it 
cannot  be  heard  to  say  that  it  did  not  insure  them  in  the  position 
in  which  they  were  acting. 

2.  The  seventeenth  provision  of  the  bond  contained  this  stip- 
ulation: "The  receipt  and  retention  hereof  *  *  *  shall 
be  taken  and  held  as  a  covenant  *  *  *  that  the  employer 
make  frequent  audits  and  examinations,  and  at  all  times 
during  the  term  hereof  take  and  use  all  reasonable  steps  and 
precautions,  to  detect  and  prevent  any  act  upon  the  part  of  any 
employee,  which  would  tend  to  render  the  company  liable  for 
any  loss."  We  have  seen  that  at  no  time  did  plaintiff  make 
any  audit  or  examination  of  the  books,  business,  accounts,  or 
statements  of  Higgins  &  Ogilvie  until  after  they  had  abandoned 
its  employment.  The  trial  court  instructed  the  jury  in  its 
seventh  instructjpn  that  the  provision  of  the  bond  requiring 
plaintiff  to  make  frequent  audits  and  examinations  was  so  vague 
and  indefinite  that  it  could  not  be  determined  what  was  intended 
thereby;  and  that  the  jury  should  entirely  disregard  defendant's 
claim  that  it  had  not  been  complied  with.  The  other  require- 
ment that  plaintiff  should  use  all  reasonable  steps  and  precau- 
tions to  prevent  any  act  of  the  brokers  which  would  render  de- 
fendant liable  was  submitted  to  the  jury  under  an  instruction 
which  is  not  very  seriously  complained  of.  Error  is  predicated 
upon  instructionJk-and  upon  the  court's  failure  to  give  defend- 
ant's tenth  request,  to  the  effect  that,  if  plaintiff  did  not  make 
frequent  audits  and  examinations  of  Higgins  &  Ogilvie 's  ac- 
counts, then  it  could  not  recover. 

It  is  true,  of  course,  that  a  contract  may  be  so  vague  and 
indefinite  as  that  it  is  impossible  to  collect  from  it  the  intent 
of  the  parties  thereto ;  and  in  such  cases  the  instrument  is  void, 


SINCLAIR  v.  NATIONAL  SURETY  CO.  471 

and  no  recovery  may  be  had  thereon,  either  at  law  or  in  equity. 
Rue  v.  Rue,  21  N.  J.  Law,  377 ;  Thomson  v.  Gortner,  73  Md.  474, 
21  Atl.  371 ;  Reed  v.  Lowe  (Utah)  29  Pac.  740.  But  it  is  with 
great  reluctance  that  courts  reject  any  agreement  as  insensible 
or  unintelligible.  One  of  the  canons  of  construction  is  to  give 
effect  to  every  provision  of  a  contract,  if  possible  and  practica- 
ble for  the  reason  that  the  parties  themselves  evidently  intended 
something  thereby,  and  it  is  not  for  courts  to  reject  the  same 
unless  it  be  so  vague  and  uncertain  that  neither  a  general  nor 
a  particular  intent  can  be  gathered  therefrom.  In  other  words, 
a  contract  should  be  so  construed,  if  possible,  as  to  give  effect 
to  each  and  every  provision  thereof.  German  Ins.  Co.  v.  Roost 
(Ohio)  45  N.  E.  1097,  36  L.  R.  A.  236,  60  Am.  St.  Rep.  711; 
McKay  v.  Barnett  (Utah)  60  Pac.  1100,  50  L.  R.  A.  371  As 
between  two  constructions,  each  reasonable,  one  of  which  will 
accomplish  the  intention  of  the  parties  and  make  the  contract 
an  enforceable  one,  and  the  other  which  will  make  it  unenforce- 
able and  meaningless,  the  former  is  to  be  preferred.  Shreffler 
v.  Nadelhoffer,  133  111.  536,  25  N.  E.  630,  23  Am.  St.  Rep.  626; 
Alfree  v.  Gates,  82  Iowa,  19,  47  N.  W.  993;  Powers  v.  Clark, 
127  N.  Y.  417,  28  N.  E.  402.  As  the  provision  in  this  contract 
was  inserted  by  defendant  and  for  its  benefit,  any  ambiguity 
therein  is  to  be  taken  most  strongly  against  the  party  who  chose 
the  language.  Gillet  v.  Bank,  160  N.  Y.  549,  55  N.  E.  292; 
Paul  v.  Ins.  Co.,  112  N.  Y.  472,  20  N.  E.  347,  3  L.  R.  A.  443,  8 
Am.  St.  Rep.  758 ;  Mueller  v.  University,  195  111.  236,  63  N.  E. 
110,  88  Am  St.  Rep.  194.  But  it  is  said  that  this  rule  is  re- 
sorted to  only  when  all  other  tenets  of  construction  fail.  Pat- 
terson v.  Gage,  11  Colo.  50,  16  Pac.  560.  And  manifestly  this 
must  be  so ;  for  it  presupposes  a  binding  contract  of  some  kind, 
and  is  primarily  a  rule  of  construction,  and  not  of  destruction. 
To  arrive  at  the  intent  of  the  parties,  the  surrounding  circum- 
stances should  be  taken  into  account,  and  the  court  should  place 
itself  as  nearly  as  may  be  in  the  position  of  the  parties  who 
made  the  contract.  It  should  look  to  the  subject-matter  of  the 
contract,  the  relation  of  the  parties  thereto,  and  the  objects  and 
ends  intended  to  be  accomplished  thereby.  In  so  doing,  it 
should  take  into  consideration  other  contracts  having  reference 
to  or  bearing  upon  the  one  before  it,  especially  where  the  latter 
has  reference  to  the  same  subject-matter  as  the  former,  and  is 
the  means  whereby  the  former  was  carried  out.  Drennen  v. 


472  FIDELITY  BONDS. 

Satterfield,  119  Ala.  84,  24  So.  723 ;  Melone  v.  Ruffino,  129  Cal. 
514,  62  Pae.  93,  79  Am.  St.  Sep.  127. 

"With  these  rules  in  mind,  we  now  go  to  the  provision  in 
question,  and  find  that  it  obligates  plaintiff  to  make  frequent 
audits  and  examinations  to  detect  and  prevent  any  act  of  its 
employe  which  would  tend  to  render  defendant  liable. 

Putting  ourselves  as  nearly  as  we  may  in  the  position  of  the 
parties  when  this  bond  was  given,  we  find  that  plaintiff  had  a 
contract  with  Higgins  &  Ogilvie  which  obligated  the  latter  to 
make  various  reports,  statements,  deposits,  etc.,  which,  if  proper- 
ly checked  up  and  examined,  would  show  any  defaults  or  mis- 
management on  their  part.  Of  this  defendant  is  presumed  to 
have  had  notice,  and  it  undertook  to  become  responsible  for  the 
conduct  of  the  firm  under  its  contract  with  plaintiff,  provided 
plaintiff  would  make  frequent  audits  and  examinations  to  de-> 
tect  and  prevent,  etc.  Are  these  words  ''frequent  audits  and 
examinations"  so  indefinite  and  insensible  in  view  of  the  situa- 
tion thus  described  as  to  be  unintelligible,  and  therefore  void? 
We  think  not.  "To  audit"  is  to  examine  and  adjust,  as  to 
audit  and  adjust  accounts.  Primarily  it  means  a  hearing;  but 
not  necessarily  so.  What  was  it  which  was  to  be  audited  and  ex- 
amined? Manifestly  the  accounts  and  statements  which  Hig- 
gins &  Ogilvie  were  required  by  the  terms  of  their  contract  with 
plaintiff  from  time  to  time  to  make.  No  hearing  was  contem- 
plated for  the  brokers  were  in  Alaska,  and  plaintiff's  branch 
house  in  Portland,  Ore.  So  that  a  personal  hearing  was  not 
contemplated.  The  reports  and  statements  were  to  take  the 
place  of  personal  supervision,  and  the  audit  and  examination 
was  manifestly  to  be  of  these.  There  was  evidence  to  show  that 
plaintiff  made  no  such  audits  or  examinations  as  it  promised; 
and  this  issue  should  have  been  submitted  to  the  jury  under  in- 
structions. The  term  "frequent"  should  be  construed  with 
reference  to  the  situation  of  the  parties,  and  means  no  more  than 
with  reasonable  frequency,  depending  upon  the  situation  of  the 
parties,  and  the  existing  obligations  of  the  contract  with  refer- 
ence to  accounts,  etc.  We  are  constrained  to  hold  that  the  trial 
court  was  in  error  in  declaring  the  provision  of  the  bond  now 
under  consideration  invalid.  The  error  was  not  cured  by  the 
subsequent  instruction  requiring  plaintiff  to  take  and  use  reason- 
able steps  and  precautions  to  detect  and  prevent  any  act  on  the 
part  of  the  employe  tending  to  render  defendant  liable;  for  the 


SINCLAIR  v.  NATIONAL  SURETY  CO.  473 

jury  may  well  have  said,  taking  the  instructions  together,  that 
this  did  not  include  the  auditing  or  examination  of  the  brokers' 
accounts,  statements,  etc.  Our  conclusion  on  this  branch  of 
the  case  finds  support  in  the  following:  Board  v.  Citizens'  Co., 
30  U.  C.  P.  132 ;  Harbour  Com.  v.  Guaranty  Co.,  22  Can.  Sup. 
Ct.  542;  Rice  v.  Fidelity  Co.,  103  Fed.  429,  43  C.  C.  A.  270; 
Hunt  v.  Fidelity  Co.,  99  Fed.  243,  39  C.  C.  A.  496.  Appellee 
seems  to  rely  principally  upon  the  rule  of  construction  already 
alluded  to,  to  the  effect  that  the  language  should  be  construed 
most  strongly  against  the  defendant.  This  we  concede  to  be  the 
rule,  but  it  does  not  meet  the  proposition  announced  by  the  trial 
court  that  the  provision  is  void  for  uncertainty.  The  rule  can- 
not be  used  to  refine  away  the  terms  of  a  contract  or  to  destroy 
its  validity  as  an  enforceable  obligation.  Guaranty  Co.  v.  Bank, 
183  U.  S.  419,  22  Sup.  Ct.  124,  46  L.  Ed.  253. 

3.  Failure  on  plaintiff's  part  to  furnish  proofs  of  loss  is  re- 
lied upon  as  a  defense.  It  seems  that  plaintiff  attempted  to 
make  two  separate  proofs  of  loss ;  one  under  the  $2,000  bond,  and 
the  other  under  the  increased  one.  As  to  the  second,  defendant 
denied  all  liability  under  the  increased  bond,  because  of  want 
of  authority  on  the  part  of  its  agent  who  granted  the  increase 
and  received  the  premium.  This  was  a  clear  waiver  of  any 
proofs  of  loss,  and  of  defects,  if  any,  in  those  furnished ;  for  an 
attempt  to  make  or  correct  them  would  have  been  an  idle  cere- 
mony. Stephenson  v.  Bankers'  Ass'n,  108  Iowa,  646,  79  N.  W. 
459,  and  cases  cited.  As  to  proof  of  loss  under  the  first  bond, 
this  was  furnished  or  attempted  to  be  furnished  May  15,  1902. 
It  was  retained  by  defendant  without  objection,  suggestion,  or 
complaint  until  June  27th,  when  it  returned  the  same  to  plaintiff 
with  a  demand  for  new  proof.  The  bond  provided  that  proofs 
should  be  made  within  six  months  from  the  time  liability  there- 
under terminated.  The  tune  for  making  proofs  under  the  first 
bond  expired  May  16,  1902;  and  defendant,  although  receiving 
the  original  proofs  in  time,  made  no  objection  thereto  until 
June  27th,  and  then  demanded  new  proofs,  which,  if  furnished, 
must  have  been  after  the  time  therefor  had  expired.  In  these 
circumstances  defendant  was  bound  to  make  its  objections  to 
the  proofs  within  a  reasonable  time,  to  the  end  that  they  might 
be  met,  if  possible.  As  it  failed  to  do  so,  it  waived  any  further 
proofs.  Young  v.  Ins.  Co.,  45  Iowa  383,  24  Am.  Eep.  784; 
Dyer  v.  Ins.  Co.,  103  Iowa  531,  72  N.  W.  681;  Green  v.  Ins. 


474  FIDELITY  BONDS. 

Co.,  84  Iowa  137,  50  N.  W.  558.     This  matter  of  waiver  of 
proofs  was  properly  submitted  to  the  jury. 

4.  Defendant  insists  that  it  was  for  plaintiff  to  show  full 
compliance  with  each  and  all  of  the  conditions  of  the  bond,  and 
that  the  jury  should  have  been  so  instructed.     But  that  is  not 
the  rule  of  this  court.     It  was  for  defendant  to  plead  and  prove 
breach  of  these  conditions.    Jones  v.  Accident  Ass'n,  92  Iowa, 
658,  61  N.  W.  485. 

5.  The  bond  provided  that  defendant  should  not  be  liable 
for  any  sum  whatever  which  the  employe  at  the  commencement 
of  the  bond  term  owed  his  employer.     As  it  was  given  to  cover 
the  personal  dishonesty  of  the  employe,  and  not  to  guaranty 
payment  of  his  debt,  it  is  manifest,  we  think,  that  defendant  is 
not  liable  for  any  money  collected  by  Higgins  &  Ogilvie  before 
the  bond  went  into  effect,  and  which  was  afterwards  dishonestly 
converted  by  them.     This  thought  was  not  presented  to  the  jury 
by  the  trial  court,  although  request  was  made  of  it  to  do  so 
in  proper  instructions.     Indeed,  the  contrary  proposition  was 
announced  by  the  court.     In  this  there  was  error  prejudicial  to 
appellant.     At  the  time  of  the  execution  of  the  first  bond  Hig- 
gins &  Ogilvie  had  been  plaintiff's  brokers,  handling  goods  for 
some  time,  and  under  the  evidence  was  indebted  to  plaintiff  for 
goods  sold.     As  to  this  amount,  defendant  was  not  responsible, 
no  matter  if  the  money  thus  received  was  thereafter  dishonestly 
converted. 

6.  The  first  bond  went  into  effect  July  14,  1901,  and  the  in- 
creased bond  was  given  November  16,  1901.     In  this  connection 
defendant  asked  an  instruction  as  follows:    "If  you  find  from 
all  the  evidence  that  any  of  the  meats,  produce,  or  merchandise, 
or  the  proceeds  thereof  were  wrongfully  converted  to  the  use 
of  the  firm  of  Higgins  &  Ogilvie,  or  either  of  them,  between  July 
13,  1901,  and  March  3,  1902,  and  if  you  further  find  from  the 
evidence  that  said  wrongful  conversion  of  said  meats  and  pro- 
ducts, or  the  proceeds  thereof,  if  you  find  there  was  any,  was 
wrongfully  converted  to  the  use  of  said  Higgins  &  Ogilvie,  or 
either  of  them,  by  said    firm,  or  either  member  thereof,  was  all 
done  by  them  prior  to  November  16,  1901,  then  you  are  in- 
structed that  the  defendant  is  not  liable  to  plaintiff  under  the 
contract  sued  on  in  an  amount  greater  than  $2,000  which  is  the 
amount  of  the  original  bond,  and  your  verdict  should  not  exceed 
that  sum."     This  instruction  announced  the  law,,  and  should 


SINCLAIR  v.  NATIONAL  SURETY  CO.  475 

have  been  given.     It  was  not  covered  by  any  of  those  read  to 
the  jury. 

7.  In  the  twelfth  instruction  the  court  said  that  if  Higgins 
&  Ogilvie,  or  either  of  them,  knowingly  failed  and  refused  to 
account  for  and  turn  over  plaintiff's  property  when  demanded 
by  plaintiff  or  the  proceeds  of  the  sales  thereof  then  in  their 
possession,  as  required  by  their  contract,  this  would  be  such  per- 
sonal dishonesty  as  would  render  defendant  liable  on  its  bond. 
In  other  words,  a  technical  conversion  was  treated  by  the  trial 
court  as  a  dishonest  act  on  the  part  of  the  employe.    Manifestly 
this  cannot  be  the  law.     That  the  instruction  was  prejudicial  is 
clear.     Higgins  &  Ogilvie  abandoned  the  business  in  December 
of  the  year  1901.     Thereafter  they  had  no  personal  charge  of 
the  goods,  and  could  not  have  been  guilty  of  any  personal  dis- 
honesty in  connection  therewith.     In  this  action  defendant  is 
sought  to  be  held  for  the  value  of  all  the  goods  shipped  Higgins 
&  Ogilvie,  less  proper  and  legitimate  credits.     If  the  jury  fol- 
lowed the  instructions  just  referred  to,  it  was  justified  in  charg- 
ing defendant  with  the  goods  or  the  proceeds  thereof  while  in 
the  hands  of  Driscoll  or  the  Canadian  Bank.     This,  of  course, 
cannot  be  the  measure  of  defendant's  liability. 

8.  If  it  be  true,  as  plaintiff  seems  to  contend,  that  liability 
on  the  increased  bond  did  not  begin  until  the  increase  was  made, 
then  the  trial  court  was  in  error  in  its  fourteenth  instruction, 
regarding  the  extent  of  defendant 's  liability  under  this  increased 
bond.     We  shall  not  set  out  the  instruction  in  full.     Suffice  it 
to  say  that  it  made  defendant  liable  for  all  moneys  in  the  hands 
of  Higgins  &  Ogilvie  at  the  time  the  increase  of  bond  was  grant- 
ed, although  such  moneys  were  not  dishonestly  appropriated 
until  after  the  bond  was  increased.    "We  are  not  to  be  under- 
stood as  saying  that  the  rule  announced  is  incorrect.     Our  po- 
sition here  is  based  upon  what  we  understand  to  be  plaintiff's 
view  of  defendant 's  liability  under  the  original  and  the  increased 
bond.     It  is  contended  for  appellant,  as  we  understand  it,  that 
defendant's  liability  is  no  different  than  it  would  have  been  had 
there  been  two  separate  and  independent  bonds.     If  that  be 
true,  then  it  is  difficult  to  see  how  defendant  can  be  made  liable 
for  money  owing  plaintiff  at  the  time  the  increased  bond  was 
£iven.    We  are  in  so  much  doubt  on  this  proposition  that  we 
make  no  definite  pronouncement  thereon.     It  may  be  that  the 
instruction  viewed  in  the  light  of  the  expressed  terms  of  the  bond 


476  FIDELITY  BONDS. 

as  increased  is  correct.  Indeed,  as  an  abstract  proposition,  we 
are  inclined  to  think  it  is  correct.  What  we  have  said  is  bot- 
tomed upon  what  we  understand  to  be  counsel's  contention  as 
to  defendant 's  liability  under  the  original  and  the  increased  bond. 
If  wrong  in  this,  then  we  are  not  prepared  to  say  there  was 
error  in  the  instruction  as  given. 

Other  matters  argued  need  not  be  considered,  for  they  are 
either  without  merit  or  are  not  likely  to  arise  upon  a  retrial. 
But  for  the  errors  pointed  out  the  judgment  must  be  reversed 
and  the  cause  remanded  for  a  retrial. 

Appellant's  motion  to  strike  appellee's  amended  abstract, 
which  was  submitted  with  the  case,  is  overruled. 

Reversed  and  remanded. 


WILLOUGHBY  v.  FIDELITY  &  DEPOSIT  CO.     1906. 
16  Okl.  546;  85  Pac.  Rep.  713. 

•  GILLETTE,  J.  In  this  case,  the  plaintiff,  J.  A.  Willoughby,  as 
receiver  of  the  Capitol  National  Bank  of  Guthrie,  sues  the  Fi- 
delity &  Deposit  Company  of  Maryland  upon  the  bond  of  the 
defendant  company,  guarantying  the  faithful  discharge  of  the 
duties  of  Chas.  E.  Billingsley,  as  president  of  the  Capitol  Na- 
tional Bank.  A  copy  of  the  bond  with  all  its  indorsements  is 
attached  to  and  made  a  part  of  the  plaintiff's  petition.  The 
bond  provides,  among  other  things :  "Amount,  $10,000.00.  An- 
nual premium,  $40.00.  Baltimore,  Md.  Whereas  Chas.  E.  Bill- 
ingsley, Guthrie,  Ok.,  hereafter  called  the  'employee'  has  been 
appointed  to  the  position  of  president,  in  the  service  of  the  Cap- 
itol National  Bank,  Guthrie,  Oklahoma,  hereafter  called  the 
'employer'  and  whereas,  the  employer  has  delivered  to  the  Fi- 
delity Deposit  Company  of  Md.,  a  corporation  of  the  state  of 
Maryland,  hereafter  called  the  '  Company, '  certain  statements  in 
writing  relative  to  the  employee,  his  conduct,  duties,  employ- 
ment and  accounts,  the  manner  of  conducting  the  business  of  the 
employer,  and  other  things  connected  with  the  issuance  of  this 
bend,  which,  together  with  any  other  statements  in  writing, 
hereafter  made  by  the  employer  to  the  company  relating  to  any 
such  matters,  do  and  shall  constitute  the  basis  and  form  part  of 


WILLOUGHBY  v.  FIDELITY  &  DEP.  CO.  477 

this  contract,  or  any  continuation  thereof,  and  shall  be  war- 
ranted; and  it  is  hereby  agreed,  that  any  such  statement,  made 
in  writing  by  the  president,  cashier,  or  any  officer  or  director 
of  the  employer,  shall  be  considered  the  statements  of  the  em- 
ployer within  the  meaning  hereof.  Now,  therefore,  in  consid- 
eration of  the  sum  of  $40.00  paid  as  premium  for  the  period 
from  January  1,  1904,  to  January  1,  1905,  at  12  o'clock  noon, 
and  upon  the  faith  of  said  warranties  of  said  employer  as  afore- 
said, it  is  hereby  agreed  that,  subject  to  the  obligations  imposed 
by  this  bond,  on  the  employer  the  performance  of  which  shall  be 
condition  precedent  to  the  right  on  the  part  of  the  employer  to 
recover  under  this  bond,  the  company  shall,  at  the  expiration  of 
three  months  next  after  proof  of  a  pecuniary  loss  as  hereinafter 
mentioned,  has  been  given  to  the  company,  reimburse  the  em- 
ployer to  the  extent  of  the  sum  of  $10,000.00,  and  no  further 
for  such  pecuniary  loss  of  money,  securities,  or  other  personal 
property,  as  the  employer  shall  have  sustained  by  any  dishonest 
act  or  acts  committed  by  the  employee  in  the  performance  of  the 
duties  of  the  office  or  position  in  the  service  of  the  employer 
hereinbefore  referred  to,  or  of  such  other  office  or  position  as 
employee  may  be  subsequently  appointed  to  or  called  upon  to 
fill  by  the  employer,  as  such  duties  have  been  or  may  hereafter 
be  stated  in  writing  by  the  employer  to  the  company,  and  occur- 
ring during  the  continuance  of  this  bond,  and  discovered  at  any 
time  within  six  months  after  the  expiration  or  cancellation  of 
this  bond,  or  in  case  of  the  death,  resignation,  or  removal  of  the 
employee,  prior  to  the  expiration  or  cancellation  of  the  bond, 
within  six  months  after  such  death,  resignation,  or  removal." 

Then  follows  conditions  of  the  bond  that  are  not  material  in 
the  consideration  of  this  case.  The  defendant  surety  company 
answered  admitting  the  giving  of  the  bond,  but  denying  liability, 
because,  as  it  claimed,  the  bond  was  procured  by  false  and  fraud- 
ulent representations  made  by  the  Capitol  National  Bank  to  the 
defendant  surety  company,  concerning  the  said  Chas.  E.  Billings- 
ley,  his  conduct,  duties,  employment,  and  accounts.  A  copy  of 
the  letter  of  the  defendant  surety  company,  to  the  Capitol  Na- 
tional Bank,  asking  for  information,  together  with  such  of  the 
questions,  answers,  and  statements  made  by  K.  S.  Briggs,  the  as- 
sistant cashier,  as  are  necessary  for  the  consideration  of  this 
case,  are  as  follows : 


478  FIDELITY  BONDS. 

"Baltimore,  December  5th,  1903.  To  the  Capitol  National 
Bank,  Guthrie,  0.  T. :  An  application  has  been  made  to  this 
company  to  issue  to  you  a  Fidelity  Bond  for  Mr.  C.  E.  Billings- 
ley,  as  president  in  your  service  at  Guthrie,  0.  T.,  to  the  amount 

of  $ .    Before  passing  on  the  said  application  the  company 

must  have  answers  to  the  following  questions :    Very  respectfully 
yours,  Edwin  Warfield,  President." 

"5.  (a)  Is  he  now  (C.  E.  Billingsley)  or  has  been  from 
any  cause  indebted  to  the  bank  or  its  officers?  A.  No.  (b)  If 
so,  give  particulars,  stating  amount,  how  incurred,  and  how  pay- 
ment is  secured.  Not  answered.  It  is  agreed  that  the  above 
answers  shall  be  warranties,  and  shall  constitute  the  basis  and 
form  part  of  the  bond,  or  any  continuation  or  continuations  of 
the  same  that  may  be  issued  by  the  Fidelity  &  Deposit  Company 
of  Maryland,  to  the  undersigned  upon  the  person  above  named, 
and  it  is  agreed  that  the  duties,  powers  and  remunerations  of 
the  employee  and  obligations  of  the  employer  as  stated  in  the 
above  warranty  shall  remain  unchanged  during  the  currency  of 
this  bond  or  any  continuation  or  continuations  thereof.  Dated 
at  Guthrie  this  22d  day  of  December,  1903.  Capitol  National 
Bank,  by  R.  S.  Briggs,  Ass 't  Cashier,  Official  Capacity. ' ' 

"This  must  be  returned  to  the  home  office,  Baltimore,  Md., 
before  bond  will  be  issued. ' ' 

The  reply  is  an  unverified  general  denial,  and  a  special  denial 
of  the  authority  of  R.  S.  Briggs,  the  assistant  cashier,  to  bind 
the  bank  by  his  answers  to  said  questions,  and  by  the  agreement 
he  undertook  to  make  on  behalf  of  the  bank.  Upon  the  trial 
of  the  cause  it  was  shown  by  the  plaintiff,  and  by  the  proper 
cross-examination  of  plaintiff's  witnesses,  that  notwithstanding 
the  statement  of  the  said  R.  S.  Briggs,  the  assistant  cashier,  in 
answer  to  question  5a,  that  Mr.  Billingsley  was  not  indebted  to 
the  bank,  he  was  at  the  time  the  statement  was  made  indebted 
to  the  bank  on  his  own  note  of  $5,150,  and  his  own  overdraft  of 
$35,693.24.  The  bond  given  by  the  defendant  surety  company 
and  accepted  by  the  bank  expressly  provided  that  the  statements 
in  writing  relative  to  C.  E.  Billingsley,  his  conduct,  duties,  em- 
ployment, and  account,  and  other  things  connected  with  the  is- 
suance of  the  bond,  should  constitute  the  basis,  and  form  a  part 
of  the  contract,  and  should  be  warranted;  and  that  any  state- 
ments made  in  writing  by  any  officer  of  the  bank  should  be  con- 
sidered the  statements  of  the  bank;  and  in  consideration  of  the 
sum  of  $40,  and  upon  the  faith  of  such  warranties  of  the  said 


WILLOUGHBY  v.  FIDELITY  &  DEP.  CO.  479 

bank  the  $10,000  bond  sued  on  herein  was  given  by  the  surety 
company,  and  accepted  by  the  bank.  When  the  plaintiff  rested, 
the  defendant  surety  company  demurred  to  the  evidence  upon 
the  ground  that  the  plaintiff  had  failed  to  prove  facts  sufficient 
to  constitute  a  cause  of  action  in  favor  of  the  plaintiff  and 
against  the  defendant.  The  demurrer  to  the  evidence  was  sus- 
tained, and  the  case  dismissed  at  the  cost  of  the  plaintiff,  and 
he  brings  it  to  this  court  claiming  that  the  trial  court  erred  in 
sustaining  the  demurrer. 

In  this  court  the  plaintiff  contends  that  whatever  his  rights 
might  have  proved  to  be  upon  a  full  and  final  hearing,  the  de- 
murrer to  the  evidence  was  not  well  taken,  and  should  not  have 
been  sustained,  based  as  it  was  on  the  pleadings  and  plaintiff's 
evidence  alone.  Let  us  examine  for  a  moment  the  issues  and 
status  of  the  case  when  plaintiff  rested,  and  the  demurrer  was 
interposed  by  the  defendant,  and  sustained  by  the  court.  A  copy 
of  the  bond  sued  on  was  attached  to  and  made  a  part  of  the 
plaintiff's  petition,  and  was  admitted  by  the  defendant 
in  its  answer,  so  it  was  fully  before  the  court.  The  questions 
and  answers  thereto,  as  made  by  the  cashier,  and  the  statements 
attached  to  them,  were  attached  to  and  made  a  part  of  the  de- 
fendant's answer,  and  not  being  denied  under  oath  under  sec- 
tion 3986  of  our  statutes  of  1893,  were  taken  as  true,  and  there- 
fore were  fully  before  the  court.  By  the  terms  of  the  bond  itself 
these  questions  and  answers,  and  the  statement  attached  thereto 
were  made  a  part  of  the  bond,  and  constituted  the  basis  of  the 
contract,  and  were  stipulated  to  be  warranties;  and  upon  the 
faith  of  such  warranties  the  bond  was  issued  by  the  surety  com- 
pany, and  accepted  by  the  bank.  The  pleadings  and  evidence 
also  disclosed  that  in  December,  1903,  application  was  made  to 
the  defendant  surety  company  for  this  bond  for  C.  E.  Billings- 
ley,  as  president  of  the  Capitol  National  Bank;  that  the  surety 
company  by  its  letter  of  December  5th  submitted  certain  ques- 
tions to  the  bank  to  be  answered  by  it;  that  on  December  22, 
1903,  the  questions  were  answered  by  R.  S.  Briggs,  the  assistant 
cashier  of  the  bank,  and  he  answered  them  falsely,  knowing  at 
the  time  that  the  answers  were  false ;  that  on  December  30,  1903, 
the  defendant  surety  company  issued  its  bond,  and  the  bank 
accepted  it,  upon  the  express  written  condition  contained  in  the 
body  of  the  bond  itself,  that  the  statements,  answers,  and  repre- 
sentations so  made  should  constitute  the  basis,  and  form  a  part 


480  FIDELITY  BONDS. 

of  the  contract;  and  that  the  bond  was  .issued  by  the  surety 
company  and  accepted  by  the  bank  upon  the  faith  of  the  said 
warranty  and  representations;  that  during  the  years  covered  by 
the  life  of  the  bond  the  doors  of  the  bank  were  closed,  and  it 
was  placed  in  the  hands  of  a  receiver,  and  later  the  receiver 
brought  this  action  to  recover  from  the  surety  company  on  the 
bond  in  question,  claiming  that  the  said  C.  E.  Billingsley,  the 
bonded  president,  had  defaulted  in  a  sum  far  in  excess  of  the 
amount  of  the  bond.  In  this  condition  of  the  case  we  think  the 
question  was  fairly  presented  upon  the  demurrer  to  the  evidence 
as  to  whether  or  not  a  cause  of  action  had  been  proved  in  favor  of 
the  plaintiff,  as  against  the  defendant.  A  careful  examination  of 
the  record  has  convinced  us  that  the  plaintiff  did  not  make  out 
his  case,  and  that  the  demurrer  to  the  evidence  was  well  taken 
and  properly  sustained.  We  shall  base  our  conclusion  upon 
but  one  of  the  grounds  urged  in  the  court  below. 

Fidelity  and  guaranty  insurance  is  of  comparatively  modern 
origin,  and  has  not  had  the  consideration  in  the  books  that  has 
been  bestowed  upon  fire  and  life  insurance.  But  while  it  is  of 
but  comparatively  modern  origin,  it  is  nevertheless  already  a 
thoroughly  established  and  legitimate  line  of  insurance  that  has 
come  to  stay,  and  indeed  is  filling  a  most  important  part  in  the 
modern  business  world.  From  reason  and  analogy,  however,  it 
is  plain  that  many  of  the  principles  underlying  and  governing 
fire  and  life  insurance  must  apply  to  fidelity  and  guaranty  in- 
surance. It  has  long  been  the  settled  law  in  fire  and  life  in- 
surance that  where  statements  and  representations  have  been 
made  by  the  insured  as  the  basis  for  the  insurance,  and  by  the 
terms  of  the  policy  issued  and  accepted,  said  statements  are  made 
a  part  of  the  policy  itself,  any  material  false  and  fraudulent 
statement  made  by  the  insured  will  avoid  the  policy.  The  reason 
for  this  rule  is  sound.  A  person  unsound  in  body  or  mind,  who 
falsely  and  knowingly  represents  himself  to  be  sound  physically, 
in  order  to  secure  life  insurance,  and  stipulates  that  his  false 
representations  shall  be  treated  as  warranties,  and  as  part  of  the 
policy  itself,  should  not  be  allowed  to  recover.  The  man  seek- 
ing fire  insurance  who  falsely  and  knowingly  represents  his 
property  to  be  free  from  incumbrance  when  it  is  incumbered  for 
more  than  its  value,  and  such  false  representations  are  made  a 
part  of  the  policy  of  insurance,  should  not  be  allowed  to  recover 
for  a  loss  by  fire,  for  reasons  too  apparent  to  admit  of  considera- 


WILLOUGHBY  v.  FIDELITY  &  DEP.  CO.  481 

tion  here.  In  the  case  of  Dwight  et  al.  v.  Germania  Life  In- 
surance Co.,  103  N.  Y.  341,  8  N.  E.  654,  57  Am.  Rep.  729,  the 
court  says:  "Where  the  assured,  in  a  policy  of  life  insurance, 
warrants  the  truth  of  the  answers  made  by  him  to  questions  in 
his  application,  compliance  with  such  warranty  is  a  condition  of 
the  validity  of  the  contract  of  insurance,  and  it  must  be  as- 
sumed that  any  substantial  deviation  from  truth  in  such  answers 
is  material  to  the  risk  and  renders  the  policy  void."  Also  see 
the  following  cases,  and  cases  cited  therein:  Price  v.  Phoenix 
Mutual  Life  Insurance  Co.,  17  Minn.  497  (Gil.  473),  10  Am. 
Rep.  166 ;  Jeffries  v.  Economic  Mutual  Life  Ins.  Co.,  22  Wall. 
47,  22  L.  Ed.  833. 

We  are  not  entirely  without  precedent  in  fidelity  guaranty 
insurance  cases.  In  the  case  of  the  American  Credit  Indemnity 
Company  v.  Carrollton  Furniture  Manufacturing  Co.,  95  Fad. 
Ill,  36  C.  C.  A.  671,  this  language  is  used:  "When  there  is  a 
definite  agreement  that  the  application  for  insurance  is  a  part 
of  the  contract,  and  the  statements  in  the  application  are  ex- 
pressly declared  to  be  warranties,  they  are  treated  as  such,  and 
not  merely  as  representations,  and  must  be  strictly  construed, 
or  the  policy  will  not  take  effect."  See,  also,  Hunt  v.  Fidelity 
&  Casualty  Co.,  99  Fed.  242,  39  C.  C.  A.  496,  and  authorities 
there  cited.  In  the  Hunt  Case,  the  court  says :  ' '  The  promissory 
statement,  having  been  made  part  of  the  contract  between  the 
parties,  by  the  terms  both  of  the  policy  and  the  declarations,  was, 
in  effect,  a  warranty,  which  the  assured  was  bound  to  fulfill  in 
substance  and  according  to  its  meaning.  Jeffries  v.  Insurance 
Company,  22  Wall.  53,  22  L.  Ed.  833 ;  Insurance  Co.  v.  France, 
91  U.  S.  513,  22  L.  Ed.  401 ;  Brady  v.  Association,  9  C.  C.  A. 
252,  60  Fed.  727 ;  Mo.  K.  T.  Trust  Co.  v.  Herman  National  Bank, 
23  C.  C.  A.  65,  77  Fed.  117.  It  is  quite  immaterial  that  the 
statement  is  not  called  warranty.  It  is  a  stipulation  embodied 
in  the  contract  by  the  words  of  the  policy  for  the  performance 
of  future  acts,  and,  as  such,  is  an  express  warranty."  We  are 
aware  that  many  cases  may  be  found  in  the  books  where  doubts 
arise  as  to  whether  the  warranties  made  by  the  assured  were 
untrue  as  made,  or  were  made  in  good  faith,  and  doubts  yet 
remain  of  their  untruth.  In  such  cases  a  disputed  question  of 
fact  arises  for  the  jury  to  determine.  A  few  courts  have  gone 
so  far  as  to  hold  that  the  fact  that  the  warranties  when  made 
were  false  is  not  enough,  but  that  it  must  be  further 
si 


482  FIDELITY  BONDS. 

shown  that  they  were  also  known  to  be  false  by  the  assured; 
but  the  great  weight  of  authority  holds  that  proof  of  the  ma- 
terial falsity  of  the  warranties  defeats  the  right  of  recovery. 

In  the  case  at  bar,  however,  we  are  not  called  on  to  make  any 
fine  distinction.  The  representations  of  the  assistant  cashier, 
which  were  contracted  to  be  warranties,  were  that  C.  E.  Billings- 
ley,  the  defaulting  president,  was  not  indebted  to  the  bank  in 
any  sum.  These  warranties  were  outrageously  untrue,  and  were 
known  to  be  untrue  by  the  assistant  cashier  when  he  made  them, 
as  shown  by  his  evidence.  At  the  time  he  represented  that  said 
Billingsley  did  not  owe  the  bank,  he,  Billingsley,  was  indebted 
to  the  bank  on  his  own  note  of  $5,151,  and  interest,  and  on  his 
own  overdraft  in  the  sum  of  $35,693.34.  Slight  or  immaterial 
errors  may  be  conceded  not  to  avoid  the  liability  of  the  surety 
company,  but  with  such  glaring  misrepresentations  as  the  above, 
the  court  need  only  to  look  to  the  face  of  the  transaction  to  de- 
tect its  bad  faith,  when  in  connection  with  the  testimony  of  the 
assistant  cashier,  that  he  knew  of  the  above  indebtedness  of  C. 
E.  Billingsley,  when  he  represented  to  the  surety  company  that 
said  Billingsley  was  not  indebted  to  the  bank  at  all.  But  we  are 
not  confined  in  the  case  at  bar,  to  the  authorities  of  life  and  fire 
insurance  alone,  as  many  eases  have  arisen  and  have  been  passed 
on,  not  only  by  the  state  courts,  but  by  the  Supreme  Court  of 
the  United  States,  two  of  which  will  be  later  considered  in  the 
discussion  of  the  second  question  presented  in  this  case.  The 
Guarantee  Company  v.  Mechanics,  etc.,  Co.,  183  U.  S.  402,  22 
Sup.  Ct.  124,  46  L.  Ed.  253;  Fidelity  Deposit  Company  v. 
Courtney,  186  U.  S.  342,  22  Sup.  Ct.  833,  46  L.  Ed.  1193. 

This  leads  us  to  the  second  point  necessary  to  our  considera- 
tion. It  is  claimed  by  the  plaintiff  in  error  that  even  though  it 
be  true  that  willful,  false  statements  made  by  one  seeking  fidelity 
insurance,  which  are  made  the  basis  of  and  form  part  of  the 
bond  itself,  may  defeat  the  plaintiff's  rights  to  recover,  yet  such 
a  proposition  can  have  no  application  to  the  case  at  bar,  and 
cannot  affect  the  rights  of  the  plaintiff  in  this  action,  for  the 
reason  that  the  said  Briggs,  the  assistant  cashier,  had  no  author- 
ity to  make  said  statement,  or  to  bind  the  bank  in  any  way, 
and  that,  as  he  was  only  the  assistant  cashier,  no  presumption 
arises  that  he  acted  with  authority,  and  his  authority  to  act  was 
not  shown  in  the  trial  of  the  case.  This  bond  was  issued  by 
the  defendant  surety  company,  and  accepted  by  the  bank  upon 


WILLOUGHBY  v.  FIDELITY  &  DEP.  CO.  483 

the  faith  of  the  correctness  of  the  statements,  and  said  state- 
ments were  made  warranties  and  became  a  part  of  the  bond  it- 
self, and  so  became  and  were  a  part  of  the  contract  sued  on  by 
the  plaintiff.  It  is  the  well-settled  law  that  a  party  seeking  to 
recover  upon  a  contract  cannot  claim  the  benefits  arising  there- 
from, and  at  the  same  time  repudiate  its  burdens.  To  allow 
the  receiver  of  the  bank,  while  suing  on  the  contract,  to  question 
the  authority  of  the  assistant  cashier  to  make  the  statements  and 
misrepresentations  which  are  a  part  of  the  contract  sued  on, 
would  be  to  allow  him  to  accept  its  benefits  and  reject  its  burdens. 
To  secure  the  bond  on  which  its  receiver  sues,  the  bank,  by  its 
assistant  cashier,  made  the  representations  which  form  a  part 
of  the  bond  itself,  and  it  does  not  lie  in  the  mouth  of  the  re- 
ceiver, while  suing  on  the  bond,  to  repudiate  the  statements  and 
warranties  made  by  the  assistant  cashier  upon  which  the  bond 
was  secured.  The  Supreme  Court  of  the  United  States  has  said : 
"The  information  solicited  was  such  as  was  proper  to  be  asked 
of  and  communicated  by  the  bank,  and  as  the  renewal  was  pre- 
sumably made  upon  the  faith  of  the  statements  contained  in  the 
certificate,  the  bank  ought  not  to  be  heard,  while  seeking  to 
obtain  the  benefits  of  the  stipulation  agreed  to  be  performed  by 
the  surety,  to  deny  the  authority  of  its  officers  to  make  the  repre- 
sentations which  induced  the  surety  to  again  bind  itself  to  be 
answerable  for  the  faithful  performance  by  MeKnight  of  the 
duties  of  his  employment. ' '  Fidelity  &  Deposit  Co.  v.  Courtney, 
186  U.  S.  342,  22  Sup.  Ct.  833,  46  L.  Ed.  1193;  Railway  Com- 
panies v.  Keokuk  Bridge  Co.,  131  U.  S.  371,  9  Sup.  Ct.  770, 
33  L.  Ed.  157. 

The  plaintiff  in  error  lays  great  stress  upon  the  case  of  the 
American  Surety  Co.  v.  Pauly,  170  U.  S.  134,  18  Sup.  Ct.  552, 
42  L.  Ed.  977.  That  was  a  case  wherein  Geo.  N.  O'Brien,  as 
cashier  of  the  California  National  Bank  sought  and  secured  an 
indemnity  bond  from  the  surety  company  in  the  sum  of  $15,000. 
In  his  negotiations  for  this  bond  he  transmitted  to  the  surety 
company  a  strong  letter  of  recommendation  from  one  J.  W. 
Collins,  the  president  of  said  bank.  Collins  also  secured  from 
said  surety  company  a  $25,000  bond  for  himself.  During  the 
life  of  these  bonds  0  'Brien  and  Collins,  acting  together,  wrecked 
the  bank,  and  its  doors  were  closed.  The  surety  company  re- 
fused payment,  and  suit  wa-<  brought  against  it.  It  was  con- 
tended that  the  president  of  the  bank  had  made  false  represen- 


1 


484  FIDELITY  BONDS. 

tations  concerning  O'Brien,  his  conduct,  his  character,  accounts, 
and  integrity,  in  order  to  enable  0  'Brien  to  secure  the  bond,  and 
that  the  receiver  of  the  bank  should  not  be  allowed  to  recover 
on  the  bond  secured  by  the  fraud  of  the  president ;  but  the  court 
held  the  surety  company  liable,  and  upon  the  authority  in  that 
case  the  plaintiff  in  error  maintains  that  the  surety  company 
in  this  case  should  also  be  held  liable.  In  that  case  the  court 
said:  "None  of  the  cases  cited  embrace  the  present  one.  In 
the  first  place  the  procuring  of  a  bond  for  O'Brien  in  order  that  '  \ 
he  might  become  qualified  to  act  as  cashier,  was  no  part  of  the 
business  of  the  bank,  nor  within  the  scope  of  any  duty  imposed 
upon  Collins  as  president  of  the  bank.  It  was  the  business  of 
O'Brien  to  obtain  and  present  an  acceptable  bond.  And  it  was 
for  the  bank  by  its  constituted  authorities  to  accept  or  reject 
the  bond  so  presented.  The  bank  did  not  authorize  Collins  to 
give  nor  was  it  aware  he  gave,  nor  was  he  entitled  by  virtue  of 
his  office  as  president  to  sign  any  certificate  as  to  the  efficiency, 
fidelity,  or  integrity  of  O'Brien.  No  relationship  existed  be- 
tween the  bank  and  the  surety  company  until  0  'Brien  presented 
to  the  former  the  bond  in  suit.  What,  therefore,  Collins  as- 
sumed in  his  capacity  as  president  to  certify  as  to  O'Brien's 
fidelity  and  integrity,  was  not  within  the  course  of  the  business 
of  the  bank  nor  within  any  authority  he  possessed.  He  could 
not  create  such  authority  by  assuming  to  have  it. ' ' 

It  will  be  noted  that  the  court  here  decides  that  the  recom- 
mendation of  the  president  of  the  bank  was  not  authorized  by 
the  bank  itself,  and  that  being  outside  of  the  scope  of  the  du- 
ties and  authority  of  the  president,  the  recommendation  is  held 
not  to  be  that  of  the  bank,  and  hence  not  binding  upon  the 
bank.  But  it  will  also  be  noted  that  the  court  says  that  no  re- 
lationship existed  between  the  bank  and  the  surety  company  until 
O'Brien  presented  to  the  bank  the  bond  in  suit.  Under  such 
circumstances  we  think  the  conclusion  of  the  court  entirely  in 
accord  with  the  great  weight  of  authorities,  and  were  the  facts 
in  the  case  at  bar  in  accord  with  those  in  the  Pauley  Case,  we 
would  regard  it  as  a  case  in  point  and  controlling.  But  in  the 
case  now  under  consideration  it  is  not  true  that  no  relations 
existed  between  the  bank  and  the  surety  company  until  C.  E. 
Billingsley  presented  his  bond  to  the  bank.  On  the  other  hand 
application  having  been  made  to  the  surety  company  for  a 
bond,  the  surety  company,  on  December  5,  1903,  wrote  to  the 


WILLOUGHBY  v.  FIDELITY  &  DEP.  CO.  485 

bank  the  letter  of  inquiry  which  we  have  hereinbefore  set  forth. 
The  letter  of  inquiry,  it  will  be  noted,  was  addressed  to  the  bank 
and  not  to  R.  S.  Briggs,  the  assistant  cashier.  The  assistant 
cashier,  on  December  22,  1903,  answered  the  questions  and 
falsely  stated  that  C.  E.  Billingsley  was  not  indebted  to  the 
bank  in  any  sum.  He  also  signed  the  agreement  following  the 
questions,  and  a  part  of  the  same  document,  agreeing  that  the 
answers  to  the  questions  should  be  warranties  and  constitute 
the  basis,  and  form  a  part  of  the  bond  to  be  issued  by  the  surety 
company.  All  this  occurred  prior  to  the  issuance  of  the  bond, 
while  in  the  Pauley  case  no  letter  of  inquiry  was  addressed  to 
the  bank,  and  it  was  not  agreed  that  the  statements  of  the  pres- 
ident upon  which  the  bond  was  obtained  should  constitute  war- 
ranties and  be  the  basis  for  the  bond.  In  short,  no  relations 
existed  between  the  bank  and  the  surety  company  until  O'Brien 
presented  his  bond  to  the  bank.  When  the  bond  of  C.  E.  Bil- 
lingsley, in  the  case  at  bar,  was  later  issued  on  the  30th  day  of 
December,  1903,  it  expressly  provided  that  in  consideration  of 
the  sum  of  $40,  and  upon  the  faith  of  the  warranties  of  the 
said  bank  (referring  to  the  warranty  signed  by  R.  S.  Briggs, 
cashier)  the  bond  was  issued.  Not  only,  then,  was  the  bond 
issued  on  the  faith  of  the  correctness  of  the  answers  and  state- 
ments of  the  assistant  cashier  but  it  was  also  accepted  by  the 
bank  upon  the  faith  of  the  correctness  of  said  statements.  We 
think  that  these  facts  take  this  case  entirely  outside  of  the  rule 
laid  down  in  the  Pauley  case. 

Nor  are  we  alone  in  this  conclusion,  for  the  question  has 
been  twice  before  the  Supreme  Court  of  the  United  States  in 
more  recent  cases  than  the  Pauley  Case,  and  in  these  subse- 
quent cases  that  case  has  been  distinguished  to  such  an  extent 
that  it  cannot,  as  we  have  heretofore  said,  fairly  be  regarded 
as  a  case  applying  here.  In  the  case  of  the  Guarantee  Co.  v. 
Mechanics,  etc.,  Co.,  183  U.  S.  402,  22  Sup.  Ct.  124,  46  L.  Ed. 
253,  Chief  Justice  FULLER  uses  this  language:  "It  also  results 
that  there  can  be  no  recovery  at  all  on  the  cashier's  bond.  If 
the  b.ank  had  observed  the  stipulation  in  the  teller's  bond,  to 
which  we  have  referred,  it  is  obvious  there  would  have  been  no 
cashier's  bond,  and  the  question  would  not  have  arisen.  But 
this  it  did  not  do,  and  the  bond  was  given.  The  bond  provided 
that  the  company  covenanted  with  the  bank  in  reliance  on  the 
statement  and  declaration  of  the  president  on  behalf  of  the 


486  FIDELITY  BONDS. 

bank,  and  on  the  bank's  strict  observance  of  the  contract;  that 
any  misstatement  of  a  material  fact  in  the  declaration  should 
invalidate  the  bond,  etc.;  that  any  written  answers  or  state- 
ments made  by  or  on  behalf  of  said  employer  in  regard  to  or 
in  connection  with  the  conduct,  duties,  accounts,  or  methods 
of  supervision  of  the  said  employe  delivered  to  the  company 
either  prior  to  the  issue  of  this  bond,  or  to  any  renewal  thereof, 
or  at  any  time  during  its  currency,  should  be  held  to  be  warran- 
ties thereof,  and  form  a  basis  of  this  guaranty,  or  of  its  contin- 
uance. The  statements  were  required  to  be  and  were  made  on 
behalf  of  the  bank,  and  the  president  acted  for  the  bank  in  doing 
so;  and  the  bonds  were  procured  by  the  bank,  and  the  bank 
paid  the  premium.  There  can  be  no  doubt  that  the  bank  was 
responsible  for  the  representations  of  its  cashier  in  the  one 
instance,  and  its  president  in  the  other,  in  procuring  these  con- 
tracts of  indemnity.  The  representations  made  in  the  declara- 
tion on  which  the  cashier's  bond  was  issued  were  clearly  mis- 
representations. In  Pauley's  case,  the  president  and  cashier 
were  confederates  in  the  dishonesty  of  the  cashier,  for  the  pur- 
pose of  defrauding  the  bank;  and  also  it  was  held  no  part  of 
the  duties  of  the  president,  under  the  circumstances  there  dis- 
closed, to  certify  the  integrity  of  the  cashier,  as  he  did." 

In  the  still  later  case  of  Fidelity  &  Deposit  Co.  v.  Courtney, 
186  U.  S.  342,  22  Sup.  Ct.  833,  46  L.  Ed.  1193,  Justice  WHITE 
says:  "In  Guaranty  Co.  v.  Mechanics,  etc.,  Co.,  183  U.  S.  402, 
22  Sup.  Ct.  124,  46  L.  Ed.  253,  this  court  recognize  as  binding 
upon  the  bank  a  certificate  given  by  one  of  its  officers,  embody- 
ing replies  to  questions  asked  by  the  guaranty  company  re- 
specting one  of  the  employes  of  the  bank,  although  no  proof 
was  introduced  that  special  authority  had  been  conferred  upon 
the  officer  to  make  the  certificate.  Nor  does  the  ruling  in  Amer- 
ican Surety  Company  v.  Pauly,  170  U.  S.  156,  18  Sup.  Ct  552, 
42  L.  Ed.  977,  warrant  the  claim  that  it  is  an  authority  against 
the  admissibility  of  the  certificate  here  in  question.  In  the  bond 
considered  in  the  Pauley  case  it  was  not  agreed  that  the  state- 
ments of  the  president  upon  which  the  bond  was  obtained,  should 
be  the  basis  of  the  bond.  The  answers  made  by  the  person  who 
was  president  of  the  bank  to  the  interrogatories  of  the  surety 
company  were  but  mere  commendation  by  one  individual  of  an- 
other individual,  at  a  time  when,  as  said  by  the  court,  'no 
relation  existed  between  the  bank  and  the  surety  company.' 


HART  v.  UNITED  STATES.  487 

Again,  in  the  Pauley  case,  no  letter  of  inquiry  was  addressed 
to  the  bank,  unlike  the  practice  pursued  with  respect  to  the 
renewal  here  in  controversy,  and  the  letter,  whose  contents  in 
the  Pauley  case  was  claimed  to  be  binding  on  the  bank,  was  writ- 
ten by  one  who  was  not  charged  with  the  duties  of  conduct- 
ing the  correspondence  of  the  bank."  Entertaining  the  views 
that  we  do,  we  think  that  the  plaintiff  clearly  failed  to  estab- 
lish facts  sufficient  to  entitle  him  to  recover,  and  that  the  de- 
murrer to  the  evidence  was  well  taken,  and  properly  sustained. 
The  conclusions  here  reached  make  it  unnecessary  to  pass  upon 
other  questions  presented  in  briefs  of  counsel. 

The  judgment  of  the  court  below  will  be  affirmed.  All  the 
Justices  concurring,  except  PANCOAST,  J.,  who  sat  in  the  trial  of 
cause  in  the  court  below,  and  BURFORD,  C.  J.,  who  declined  to 
take  any  part  in  said  cause,  for  the  reason  that  he  is  a  cred- 
itor of  said  insolvent  bank.  / 

A 


CHAPTER  XVL 

NEGLIGENCE  OF  OFFICERS  OF  A  PUBLIC  OBLIGEE. 

a.  Sureties  are  not  discharged  by  the  negligence  or  misconduct 
of  the  officers  of  a  public  obligee. 

HART  v.  UNITED  STATES.  1877. 
95  U.  S.  316, 

Error  to  the  Circuit  Court  of  the  United  States  for  the  North- 
ern District  of  Ohio. 

This  suit  was  brought  by  the  United  States,  May  29,  1872, 
against  Hosmer,  Hart,  and  Stahl,  on  a  distiller's  bond,  exe- 
cuted by  them  May  29,  1871,  in  the  sum  of  $5,000,  and  condi- 
tioned to  be  void  if  said  Hosmer  should  faithfully  comply  with 
all  the  provisions  of  law  relating  to  the  duties  and  business 
of  distillers,  and  pay  all  penalties  incurred  or  fines  imposed 
on  him  for  a  violation  of  any  of  said  provisions,  and  should 
not  suffer  the  tract  or  lot  of  land  on  which  the  distillery  stood, 
or  any  part  thereof,  to  be  incumbered  by  mortgage,  judgment 
or  other  lien  during  the  time  in  which  he  should  carry  on  said 
business. 


488  NEGLIGENCE  OF  OFFICERS. 

The  breach  alleged  was  the  non-payment  by  said  Hosmer 
of  $3,000,  demanded  of  him,  being  the  amount  of  tax  on  six 
thousand  gallons  of  spirits,  which  he  had  distilled  after  the 
first  day  of  June,  1871.  He  made  no  defense.  The  other  de- 
fendants filed  three  pleas:  1.  That  the  bond  was  never  deliv- 
ered to  the  plaintiff;  that  the  assessor  had  no  authority  of  law 
to  approve  it;  and  that  neither  the  collector  nor  any  other  of- 
ficer of  the  plaintiff  had  authority  to  receive  it.  2.  That  the 
bond  was  a  common  distiller's  bond,  and  that  they  signed  it 
merely  as  sureties  for  Hosmer,  without  consideration,  and  for 
his  accommodation;  that,  six  days  before  its  execution,  Hos- 
mer, without  their  knowledge,  incumbered  the  ground  upon 
which  the  distillery  stood,  by  his  mortgage  of  the  same  to  one 
Dempsey,  which  was  duly  recorded  May  25,  1871 ;  that  the  plain- 
tiff did  not  require,  nor  did  Hosmer  file  with  the  assessor,  the 
written  consent  of  Dempsey  that  the  lien  of  the  United  States 
for  taxes  and  penalties  should  have  priority  to  the  mortgage, 
and  that  the  title  should,  in  case  of  forfeiture,  vest  in  the  United 
States,  discharged  of  said  mortgage;  nor  was  Hosmer  required 
to,  nor  did  he,  execute  an  indemnity  bond  against  said  mort- 
gage, as  required  by  the  act  of  Congress  approved  April  10, 
1869,  but  that  the  bond  sued  on  was  approved  without  the 
filing  of  such  consent  or  the  taking  of  such  indemnity  bond; 
that,  by  reason  of  the  non-payment  by  Eosmer  of  the  taxes 
on  distilled  spirits  which  were  chargeable,  and  a  lien  upon 
said  ground,  a  part  of  it  was  distrained  and  sold  for  $6,103, 
which  sum,  if  the  amount  of  Dempsey 's  mortgage  had  not  been 
deducted  therefrom,  would  have  been  sufficient  to  pay  Hosmer 's 
indebtedness  to  the  United  States.  3.  That  the  taxes  charged 
and  sued  for  were  assessed  against  Hosmer  on  spirits  he  had  dis- 
tilled, and  were  a  first  and  paramount  lien  thereon ;  but  that 
the  collector  of  internal  revenue  for  the  district,  without  the 
knowledge  or  assent  of  the  defendants,  and  without  first  requir- 
ing the  payment  of  the  taxes  thereon,  permitted  him  to  remove 
from  the  bonded  warehouse  a  quantity  of  said  spirits, — more 
than  sufficient  to  pay  any  just  claim  of  the  plaintiff. 

On  motion  of  the  plaintiff,  all  of  the  first  plea,  except  so  much 
as  averred  the  non-delivery  of  the  bond  sued  on,  was  stricken 
out.  Demurrers  to  the  second  and  third  were  sustained,  where- 
upon the  defendants  excepted. 

The  court  found  that  the  bond  in  suit  was  signed  May  29, 


HART  v.  UNITED  STATES.  489 

1871 ;  that  it  was,  on  the  first  day  of  June,  handed  by  Hosmer 
to  the  deputy-assessor  of  internal  revenue,  to  be  transmitted  to 
the  assessor,  by  whom  it  was  approved  June  5,  and  then  duly 
transmitted  by  mail  to  the  collector  of  the  district. 

There  was  a  judgment  for  $3,048.40,  and  costs. 

Hart  and  Stahl  then  sued  out  this  writ  of  error. 

Mr.  Chief  Justice  WAITE  delivered  the  opinion  of  the  court. 

The  second  defense  relied  upon  in  this  case  is  disposed  of 
by  Osborne  v.  United  States,  19  Wall.  577,  which  we  are  not 
inclined  to  reconsider. 

The  third  defense  is  equally  bad.     Under  the  law  as  it  stood 
when  this  suit  was  commenced,  no  distilled  spirits  could  be  re- 
moved from  a  distillery  warehouse  before  payment  of  the  tax, 
15  Stat.  130,  sect.  15,  without  subjecting  all  those  engaged  in 
such  a  removal  to  heavy  penalties,  id.  140,  sect.  36.     An  officer 
of  the  United  States  had  no  authority  to  dispense  with  this 
requirement  of  the  law.     If  in  violation  of  his  duty  he  per- 
mitted such  a  removal,  he  subjected  himself  to  punishment,  but 
did  not  bind  the  government  by  his  acts.     The  government  is 
not  responsible  for  the  laches  or  the  wrongful  acts  of  its  of- 
ficers.    Gibbons  v.  United  States,  8  Wall.  268;  United  States 
v.  Kirkpatrick,  9  Wheat.  720 ;  United  States  v.  Vanzandt,  11  id. 
184;  United  States  v.  Nicholl,  12  id.  505;  Jones  et  al.  v.  United 
States,  18  Wall.  662.    Every  surety  upon  an  official  bond  to  the 
government  is  presumed  to  enter  into  his  contract  with  a  full 
knowledge  of  this  principle  of  law,  and  to  consent  to  be  dealt 
with  accordingly.    The  government  enters  into  no  contract  with 
him  that  its  officers  shall  perform  their  duties.    A  government 
may  be  a  loser  by  the  negligence  of  its  officers,  but  it  never 
becomes  bound  to  others  for  the  consequences  of  such  neglect, 
unless  it  be  by  express  agreement  to  that  effect.    Here  the  surety 
was  aware  of  the  lien  which  the  law  gave  as  security  for  the 
payment  of  the  tax.     He  also  knew  that,  in  order  to  retain 
this  lien,  the  government  must  rely  upon  the  diligence  and  hon- 
esty of  its  agents.     If  they  performed  their  duties  and  pre- 
served the  security,  it  inured  to  his  benefit  as  well  as  that  of 
the  government;  but  if  by  neglect  or  misconduct  they  lost  it, 
the  government  did  not  come  under  obligations  to  make  good 
the  loss  to  him,  or,  what  is  the  same  thing,  release  him  pro  tanto 
from  the  obligation  of  his  bond.     As  between  himself  and  the 
government,  he  took  the  risk  of  tho  effect  of  official  negligence 


490  DEFENSES  AVAILABLE  TO  SURETY. 

upon  the  security  which,  the  law  provided  for  his  protection 
against  loss  by  reason  of  the  liability  he  assumed. 

There  was  no  error  in  striking  out  that  portion  of  the  first 
defense  which  was  objected  to.  It  was  not  responsive  to  any 
allegation  in  the  petition. 

Judgment  affirmed. 


CHAPTER  XVII. 

DEFENSES  AVAILABLE  TO  SURETY. 

a.   Generally  any  defense  that  will  defeat  an  action  against  the 
principal  debtor  will  be  available  to  the  surety. 

BERND  v.  LYNES.     1899. 
71  Conn.  733;  43  Ail.  Rep.  189. 

Case  reserved  from  superior  court,  Fairfield  county;  Silas 
A.  Robinson,  Judge. 

Action  by  Henry  Bernd  against  Lucy  "W.  Lynes,  adminis- 
tratrix. An  agreed  statement  of  facts  was  submitted  for  the 
consideration  and  advice  of  the  supreme  court, of  errors.  Judg- 
ment advised  for  defendant. 

ANDREWS,  C.  J.  The  defendant  is  the  administratrix  on  the 
estate  of  William  F.  Lacey,  late  of  Danbury.  The  plaintiff  pre- 
sented to  her  for  payment  a  certain  written  guaranty  which  he 
held,  made  by  the  said  Lacey  in  his  lifetime.  She  disallowed 
that  claim,  and  this  suit  was  then  brought.  The  writing  is  this : 
"$600.  Danbury,  Ct,  June  8th,  1869.  One  day  after  date  I 
promise  to  pay  to  the  order  of  William  F.  Lacey  six  hundred 
dollars,  value  received,  with  interest.  Wm.  G.  Randall."  In- 
dorsed on  the  back:  "For  value  received,  I  hereby  guaranty 
the  payment  of  the  within  note  until  paid.  Wm.  F.  Lacey." 
At  the  time  this  note  and  guaranty  were  executed  and  delivered, 
there  was  a  verbal  agreement  by  all  the  parties  that  payment 
should  not  be  required  so  long  as  Mr.  Randall  should  pay  the 
interest  thereon  each  year  as  it  became  due.  This  he  did  each 
year  up  to  and  including  the  year  1882.  In  1883  he  paid  noth- 
ing, nor  has  he  paid  anything  at  any  time  since.  The  plaintiff 
has  had  no  communication  regarding  said  note  with  Mr.  Ran- 
dall or  Mr.  Lacey  since  June  8,  1833.  Mr.  Lacey  died  March 


BERND  v.  LYNES.  491 

30,  1896.  The  defendant  insisted  that  the  plaintiff's  right  to 
recover  on  the  said  guaranty  was  barred  by  the  statute  of  lim- 
itations; and  this  is  the  only  question  in  the  case.  It  is  ad- 
mitted that  the  cause  of  action  against  the  maker  of  the  note  is 
barred.  Counsel  for  the  plaintiff,  in  their  brief,  clearly  and 
candidly  state  the  question.  They  say:  "It  may  be  conceded 
that,  had  the  guaranty  not  contained  the  words  'until  paid,' 
the  statute  of  limitations  would  operate  as  a  bar  to  the  present 
action."  Stated  in  a  little  different  words,  the  question  is  this: 
Does  the  cause  of  action  against  the  guarantor  continue  after 
the  statute  of  limitations  has  run  against  the  principal  debtor? 
The  answer  to  this  question  depends  upon  the  character  of  the 
contract  of  guaranty  or  suretyship ;  and  the  force  of  the  words 
"until  paid"  to. enlarge  that  contract.  What  the  character  of 
that  contract  is  was  discussed  by  this  court  in  the  very  recent 
case  of  Eising  v.  Andrews,  66  Conn.  65,  33  Atl.  585.  What 
we  said  in  that  case  is  applicable  in  this:  "The  rule  is  that 
a  cause  of  action  cannot  exist  against  a  surety,  as  such,  unless  a 
cause  of  action  exists  against  the  principal.  Ordinarily,  the 
liability  of  such  a  surety  is  measured  precisely  by  the  liability 
of  the  principal."  Brandt  Sur.  §  125;  Seaver  v.  Young,  16  Vt. 
658;  Boone  Co.  v.  Jones,  54  Iowa  709,  2  N.  W.  987,  and  7  N. 
W.  155;  Patterson's  Appeal,  48  Pa.  St.  345;  McCabe  v.  Raney, 
32  Ind.  309.  The  oblig'ation  of  a  surety  is  an  obligation  ac- 
cessory to  that  of  a  principal  debtor,  and  it  is  of  the  essence  of 
this  obligation  that  there  should  be  a  valid  obligation  of  some 
principal.  Thus,  when  one  agrees  to  become  responsible  for 
another,  the  former  incurs  no  obligation  as  surety  if  no  valid 
claim  ever  arises  against  the  principal.  Chit.  Cont.  (llth  Ed.)  *""" 
788.  If  the  principal  is  not  holden,  neither  is  the  surety;  for 
there  can  be  no  accessory  if  there  is  no  principal.  De  Col.  Guar. 
&  Sur.  (Am.  Ed.)  39;  Add.  Cont.  §  1111.  The  existence  of  a 
principal  debtor  is  a  condition  precedent  to  the  operation  of  the 
contract  of  a  surety.  Hazard  v.  Irwin,  18  Pick.  95;  Swift  v. 
Beers,  3  Denio,  70;  Mt.  Stephen  v.  Lakeman,  L.  R.  7  Q.  B. 
202 ;  Mallet  v.  Bateman,  L.  R.  1  C.  P.  163.  This  is  only  in  ac- 
cordance with  the  general  law  of  contracts  which  prevents  a 
contract  from  becoming  operative  unless  and  until  all  conditions 
precedent  are  fulfilled.  Brandt  Sur.  §  214 ;  Bank  v.  Kingsley, 
2  Doug.  (Mich.)  379.  So  too,  in  general,  whatever  discharges 
the  principal  debtor  discharges  the  surety.  The  liability  of  a 


492  DEFENSES  AVAILABLE  TO  SURETY. 

surety,  as  such,  on  a  claim  which  is  good  as  against  the  prin- 
cipal, ceases  as  soon  as  the .  claim  is  extinguished  against  the 
principal.  The  nature  of  the  undertaking  of  a  surety  is  such 
that  there  can  be  no  obligation  on  his  part  unless  there  is  an 
obligation  on  the  part  of  the  principal.  "It  is  correctly  laid 
down  in  Chitty  on  Contracts  that  the  contract  of  a  surety  is  a 
collateral  engagement  for  another,  as  distinguished  from  an 
original  and  direct  agreement  for  the  party's  own  act;  and,  as 
is  stated  in  Theobold  on  Principal  and  Surety,  *  *  *  it 
is  a  corollary  from  the  very  definition  of  the  contract  of  sure- 
tyship that,  the  obligation  of  the  surety  being  accessory  to  the 
obligation  of  the  principal  debtor  or  obligor,  it  is  of  its  essence 
that  there  should  be  a  valid  obligation  of  such  a  principal,  and 
that  the  nullity  of  the  principal  obligation  necessarily  induces 
the  nullity  of  the  accessory.  Without  a  principal  there  can  be 
no  accessory.  Nor  can  the  obligation  of  the  surety,  as  such, 
exceed  that  of  the  principal.  *  *  *  It  would  be  most  un- 
just and  incongruous  to  hold  the  surety  liable  where  the  prin- 
cipal is  not  bond."  Storrs,  J.,  in  Ferry  v.  Burchard,  21  Conn. 
603.  The  same  general  doctrine  is  held  in  many  other  cases 
in  this  state.  "Willey  v.  Paulk,  6  Conn.  74 ;  De  Forest  v.  Strong, 
8  Conn.  522 ;  Bull  v.  Allen,  19  Conn.  101 ;  Glazier  v.  Douglass, 
32  Conn.  393;  Candee  v.  Skinner,  40  Conn.  464.  The  special 
claim  in  this  case  is  that  the  words  "until  paid"  operated  to 
enlarge  the  ordinary  contract  of  suretyship,  so  as  to  take  this 
case  out  of  the  general  rule.  We  do  not  think  the  words  as 
here  used  can  be  given  that  effect.  This  case  is  the  ordinary  one 
of  suretyship,  and,  when  the  cause  of  action  has  become  barred 
by  virtue  of  the  statute  of  limitations,  the  cause  of  action  against 
the  guarantor  also  became  barred.  Judgment  is  advised  for 
the  defendant.  The  other  judges  concurred. 


GUILD  v.  BUTLER.    1877. 
Mass.  498;  23  Am.  Rep.  378. 


Contract  upon  a  promissory  note  made  by  the  defendant  pay- 
able to  Robert  W.  Dresser  &  Co.  or  order,  and  by  them  indorsed 
to  the  plaintiff. 

At  the  trial  in  the  Superior  Court,  before  PITNAN,  J.,  it  ap- 


GUILD  v.  BUTLER.  493 

peared  that  the  note  was  made  by  the  defendant  for  the  ac- 
commodation of  Dresser  &  Co.,  who  at  the  same  time  gave  him 
an  agreement  in  writing  that  they  would  themselves  pay  the 
note  at  maturity;  that  the  plaintiff  did  not  know  this  when  he. 
took  the  note,  but,  after  learning  it,  and  after  the  commence- 
ment of  this  action,  united  with  other  creditors  of  Dresser,  & 
Co.  in  a  petition  in  bankruptcy  against  Herman  D.  Bradt,  the 
surviving  partner  of  that  firm,  (Dresser,  the  other  partner,  hav- 
ing died,)  and  afterwards  voted  for  and  signed  a  resolution 
of  composition  under  the  provisions  of  the  act  of  Congress  of 
June  22,  1874,  §  17,  by  which  the  plaintiff  with  the  other  cred- 
itors of  Dresser  &  Co.  agreed  to  take,  in  full  settlement,  twenty 
per  cent  of  their  claims,  to  be  paid  in  three  equal  installments,, 
in  ten  days,  three  months  and  six  months  from  the  acceptance  of 
that  resolution,  which  was  approved  by  the  court  in  bankruptcy 
and  recorded. 

The  judge  instructed  the  jury  that,  if  the  note  sued  on  was 
an  accommodation  note,  and  the  defendant,  as  between  him  and 
Dresser  &  Co.  was  bjit  a  surety,  and  the  plaintiff  knew  that  it 
was  an  accommodation  note  when  he  entered  into  the  resolution 
would  constitute  a  defense  to  this  action.  The  jury  returned  a 
verdict  for  the  defendant;  and  the  plaintiff  alleged  exceptions. 

GRAY,  C.  J.  By  the  existing  acts  of  Congress  upon  the  sub- 
ject of  bankruptcy,  a  bankrupt's  estate  may  be  settled,  and  the 
bankrupt  discharged,  in  either  of  three  ways: 

First.  The  estate  may  be  administered  in  the  ordinary  man- 
ner by  assignees  appointed  for  the  purpose,  and  a  certificate 
of  discharge  be  granted  by  the  court,  with  the  assent,  in  some 
cases,  of  a  certain  proportion  of  the  creditors  who  have  proved 
their  claims.  Any  person  liable  as  surety  for  the  bankrupt  may, 
upon  paying  the  debt,  even  after  the  commencement  of  proceed- 
ings in  bankruptcy,  prove  the  debt,  or  stand  in  the  place  of  the 
creditor  if  he  has  proved  it ;  or,  the  debt  not  having  been  paid 
by  him  nor  proved  by  the  creditor,  may  prove  it  in  the  name 
of  the  creditor  or  otherwise.  U.  S.  Kev.  Sts.  §  5070.  Mace  v. 
Wells,  7  How.  272;  Hunt  v.  Taylor,  108  Mass.  508.  But  the 
surety's  liability  to  the  creditor  is  not  affected  by  any  certifi- 
cate of  discharge  granted  to  the  principal.  U.  S.  Rev.  Sts. 
§  5118.  Flagg  v.  Tyler,  6  Mass.  33. 

Second.  The  estate  may  be  wound  up  and  settled  by  trus- 
tees nominated  by  the  creditors,  upon  a  resolution  passed  at  a 


494  DEFENSES  AVAILABLE  TO  SURETY. 

meeting  for  the  purpose  by  three-fourths  in  value  of  the  cred- 
itors whose  claims  have  been  proved,  and  confirmed  by  the  court, 
and  upon  the  signing  and  filing,  by  such  proportion  of  the 
creditors,  of  a  consent  in  writing  that  the  estate  shall  be  so 
settled;  in  which  case  such  consent  and  the  proceedings  under 
it  bind  all  creditors  whose  debts  are  provable,  even  if  they 
have  not  signed  the  consent  nor  proved  their  debts;  the  trus- 
tees have  the  rights  and  powers  of  assignees;  the  winding  up 
and  settlement  are  deemed  proceedings  in  bankruptcy ;  the  court 
may  summon  and  examine  on  oath  the  bankrupt  and  other  per- 
sons, and  compel  the  production  of  books  and  papers;  and  the 
bankrupt  may  obtain  a  certificate  of  discharge  in  the  usual 
manner.  U.  S.  Rev.  Sts.  §  5103. 

Third.  The  creditors,  at  a  meeting  ordered  by  the  court, 
either  before  or  after  an  adjudication  of  bankruptcy,  may  re- 
solve that  a  composition  proposed  by  the  debtor  shall  be  ac- 
cepted in  satisfaction  of  the  debts  due  them  from  him.  Such 
resolution,  to  be  operative,  must  be  passed  by  a  majority  in 
number  of  the  creditors  whose  debts  exceed  fifty  dollars  in 
value,  and  by  a  majority  in  value  of  all  the  creditors,  and  must 
be  confirmed  by  the  signatures  of  the  debtor,  and  of  two-thirds 
in  number  and  one-half  in  value  of  all  his  creditors.  The 
debtor  is  required  to  attend  at  the  meeting  to  answer  inquiries, 
and  to  produce  a  statement  of  his  assets  and  debts  and  of  the 
names  and  addresses  of  his  creditors.  The  resolution,  with  this 
statement,  is  to  be  presented  to  the  court;  and  if  the  court, 
after  notice  and  hearing,  is  satisfied  that  the  resolution  has 
been  duly  passed  and  is  for  the  best  interest  of  all  concerned, 
the  resolution  is  to  be  recorded  and  the  statement  filed,  and  the 
provisions  of  the  composition  shall  be  binding  on  all  the  creditors 
whose  debts,  names  and  addresses  are  shown  on  the  statement, 
and  may  be  enforced  by  the  court  on  motion  and  reasonable 
notice,  and  regulated  by  rule  of  court,  or  may  be  set  aside  by 
the  court  for  any  sufficient  cause,  and  proceedings  in  bank- 
ruptcy had  according  to  law.  U.  S.  St.  June  22,  1874,  §  17. 
This  section,  providing  for  a  composition  under  the  supervision 
of  the  court,  is  taken  from  and  substantially  follows  126  of  the 
English  bankrupt  act  of  1869,  St.  32  and  33  Viet.  c.  71.  See 
Ex  parte  Jewett,  2  Lowell  393 ;  Re  Whipple,  2  Lowell  404. 

It  has  been  determined  in  England,  by  decisions  of  high 
authority  and  upon  most  satisfactory  reasons,  that  a  creditor, 


HOLM  v.   JAMIESON.  495 

by  participating  in  either  of  three  forms  of  proceeding,  whether 
by  assenting  to  a  certificate  of  discharge,  or  by  consenting  to 
a  resolution,  either  for  a  winding  up  through  trustees,  or  for 
the  acceptance  of  a  composition  proposed  by  the  debtor,  does 
not  release  or  affect  the  liability  of  a  surety.  Browne  v.  Carr, 
2  Russ.  600,  5  Mo.  &  P.  497  and  7  Bing.  508 ;  Megrath  v.  Gray, 
L.  R.  9  C.  P.  216 ;  Ellis  v.  Wilmot,  L.  B.  10  Ex.  10 ;  Simpson 
v.  Henning,  L.  R.  10  Q.  B.  406;  Ex  parte  Jacobs,  L.  R.  10  Ch. 
211,  overruling  Wilson  v.  Lloyd,  L.  R.  16  Eq.  60. 

The  proceedings  for  a  composition  under  the  statute,  de- 
pending for  their  validity  and  operation,  not  upon  the  act 
of  the  particular  creditor,  but  upon  the  resolution  passed  by 
the  requisite  majority  of  all  the  creditors,  binding  alike  on 
those  who  do  and  on  those  who  do  not  concur  in,  (if  their 
debts  are  included  in  the  statement  filed  by  the  debtor,)  and 
finally  confirmed  and  established  by  the  court  upon  a  consid- 
eration of  the  general  benefit  of  all  concerned,  differs  wholly 
in  nature  and  effect  from  a  voluntary  composition  deed,  which 
binds  only  those  who  execute  it.  Oakeley  v.  Pasheller,  4  Cl.  & 
Fin.  207,  S.  C.  10  Bligh  N.  R.  548;  Bailey  v.  Edwards,  4  B. 
&  S.  761 ;  Bateson  v.  Gosling,  L.  R.  7  C.  P.  9 ;  Oriental  Financial 
Corporation  v.  Overend,  L.  R.  7  Ch.  142;  Cragoe  v.  Jones,  L. 
R.  8  Ex.  81;  Gifford  v.  Allen,  3  Met.  255;  Phoenix  Cotton 
Manuf.  Co.  v.  Fuller,  3  Allen  441. 

Assuming,  therefore,  that  this  defendant,  having  signed  the 
note  for  the  accommodation  of  the  indorsers,  was  to  be  con- 
sidered as  a  surety  for  them,  and  that  the  plaintiff,  after  acquir- 
ing knowledge  of  that  fact,  stood  as  if  he  had  known  it  when 
he  took  the  note,  yet  no  defense  is  shown  to  this  action. 

Exceptions  sustained. 


HOLM  v.  JAMIESON.    1898. 
173  III  295;   50  N.  E.  Rep.  702;   45  L.  R.  A.  846. 

Error  to  appellate  court,  First  district. 

Action  by  John  Holm  against  Egbert  Jamieson  and  another 
upon  the  guaranty  of  the  payment  of  a  promissory  note.  From 
a  judgment  of  the  appellate  court  (69  111.  App.  119)  reversing 
a  judgment  in  favor  of  plaintiff,  he  brings  error.  Reversed. 


496  DEFENSES  AVAILABLE  TO  SURETY. 

PHILLIPS,  C.  J.  On  May  16th,  at  Chicago,  111.,  the  Great 
Western  Wire  Works,  by  F.  B.  Filkins,  treasurer,  executed  its 
note  for  $1,500,  due  60  days  after  date  payable  to  itself,  with 
6  per  cent,  per  annum,  interest  after  maturity,  with  power  of 
confession  of  judgment,  which  note  was  indorsed:  "Pay  to 
the  Central  Trust  and  Savings  Bank  or  order.  Great  Western 
Wire  Works,  by  F.  B.  Filkins."  This  note  came  to  the  hands 
of  John  Holm,  who  brought  suit  on  the  guaranty  indorsed 
thereon,  which  is  as  follows:  "I  hereby  guaranty  the  prompt 
payment  of  the  within  note.  E.  A.  Filkins.  Egbert  Jamieson." 
The  declaration  alleges  that,  upon  the  consideration  that  the 
Central  Trust  &  Savings  Bank  would  discount  the  note  if  the 
defendants  would  guaranty  the  prompt  payment  thereof,  the 
defendants,  for  the  consideration  aforesaid,  did  guaranty  the 
payment  of  the  same  to  the  Central  Trust  &  Savings  Bank. 
That  bank,  relying  upon  the  guaranty  of  the  defendants,  dis- 
counted the  note  for  the  maker.  After  the  guaranty  of  the 
note  by  Filkins  and  Jamieson,  and  its  indorsement  to  the  Cen- 
tral Trust  &  Savings  Bank,  that  bank  made  a  second  indorse- 
ment thereon  as  follows:  "Pay  to  John  Holm  or  order.  Cen- 
tral Trust  and  Savings  Bank,  by  W.  A.  Paulsen."  John  Holm 
having  brought  suit  on  the  guaranty  indorsed  on  said  note, 
against  Egbert  Jamieson,  one  of  the  guarantors,  the  latter  ap- 
peared, and  filed  a  plea  of  general  issue  and  a  special  plea,  in 
which  it  was  set  forth  that  William  Holland,  Merchant  &  Co. 
(a  corporation),  and  other  corporations  and  individuals  filed 
their  bill  of  complaint  against  the  Great  Western  Wire  Works, 
Sadie  H.  Filkins,  Edward  A.  Filkins,  John  Holm,  Charles  B. 
Morrow,  and  Edward  B.  Filkins,  in  which  it  was  averred  that 
a  note  held  by  John  Holm  and  numerous  other  notes  similarly 
executed  were  fraudulent  and  void  because  of  the  fact  that 
there  was  no  authority  in  the  treasurer  to  execute  the  same,  and 
asking  the  cancellation  of  the  judgment  heretofore  entered  on 
said  note  of  John  Holm,  and  that  said  notes  be  declared 
fraudulent  and  void,  and  be  canceled  and  surrendered,  and  that 
judgment  entered  upon  the  said  notes  so  executed  be  vacated 
and  annulled.  A  decree  was  entered  on  the  hearing,  in  ac- 
cordance with  the  prayer  of  the  bill,  and  these  facts  by  the 
special  plea  are  averred.  It  is  therein  further  averred  that 
the  contract  of  guaranty  was  written  on  paper  on  which  said 
fraudulent  and  void  promissory  note  was  written,  without  any 


HOLM  v.  JAMIESON.  497 

other  or  different  consideration  than  the  consideration  for  the 
said  promissory  note,  which  promissory  note  was  declared  to 
be  fraudulent  and  void,  and  decreed  to  be  canceled,  and  the 
plea  further  averred  that  said  decree  was  in  full  force.  To 
this  special  plea  a  demurrer  was  interposed,  and  a  stipulation 
entered  into  by  the  parties  to  the  declaration,  by  which  it  was 
agreed  that  the  said  special  plea  of  Jamieson  should  be  adopted 
as  the  plea  of  Filkins,  and  that  the  plaintiff  will  stand  by  his 
demurrer  to  his  special  plea,  and,  if  the  demurrer  is  overruled, 
the  judgment  to  go  for  the  defendants,  and  that  the  defendants 
agree  to  stand  by  their  special  plea,  and,  if  the  demurrer  thereto 
is  sustained,  the  judgment  shall  be  entered  for  the  plaintiff,  and 
the  plea  of  general  issue  be  withdrawn.  The  trial  court  sus- 
tained the  demurrer  to  the  special  plea,  and  entered  judgment 
for  the  plaintiff,  to  which  exception  was  taken;  and  on  appeal 
to  the  appellate  court  for  the  First  district  that  judgment  was 
reversed,  and  judgment  entered  in  the  appellate  court  for  the 
defendants,  from  which  this  appeal  is  prosecuted. 

It  is  insisted,  first,  by  the  appellant,  that  the  decree  set  up 
in  the  plea  by  which  the  note  on  which  the  guaranty  was  in- 
dorsed, and  which  was  the  basis  of  this  action,  was  not  res 
judicata  as  to  the  defendant  Jamieson,  who  was  not  a  parfy^ 
thereto,  and  that  that  decree  would  be  no  bar  to  the  prosecution 
of  the  suit  on  the  guaranty  indorsed  on  the  note.  The  conten- 
tion of  appellee  is  that,  as  there  is  no  debt  or  obligation  due 
and  owing  to  the  appellant  from  the  maker  of  the  note,  there 
is  nothing  due  and  owing  to  the  plaintiff  from  the  guarantors 
of  the  note ;  that  as  the  maker  of  the  note  has  been  released  and 
discharged  by  reason  of  the  decree,  and  the  guarantors  have 
been  deprived  of  their  right  of  action  over  or  subrogation  as 
against  the  maker,  there  can  be  no  liability  as  against  the  guar- 
antors. The  note  of  the  Great  "Western  Wire  Works 
been  executed  by  one  without  authority  to  execute  such 
as  found  in  the  decree  set  up  in  the  plea,  by  that  decree 
note  was  declared  for  that  reason  fraudulent  and  void.  To  the 
proceeding  by  which  this  decree  was  so  entered,  the  appellant, 
John  Holm,  was  a  party,  but  the  appellee  Egbert  Jamieson  was 
not  made  a  party  thereto.  We  do  not  deem  it  necessary  to 
enter  into  an  extended  discussion  of  the  question  as  to  the 
effect  of  the  decree  on  parties  and  privies,  and  as  to  its  being 
of  no  effect  in  binding  persons  who  were  not  parties  to  the 

82 


.e  guar- 

having  \ 

a  note,  j 

iree  the  X 


498  DEFENSES  AVAILABLE  TO  SURETY. 

proceeding.  The  material  question  in  this  case  to  be  determined 
is:  What  is  the  effect  of  the  contract  entered  into  by  the  de- 
fendants in  guarantying  payment  of  the  note  in  the  language 
they  did,  and  how  is  that  guaranty  affected  by  a  decree  de- 
claring the  note  itself  on  which  the  guaranty  was  written,  and 
the  payment  of  which  was  so  guarantied,  void.  The  language 
used  in  this  guaranty,  "I  hereby  guaranty  the  prompt  payment 
of  the  within  note,"  by  its  terms  fixed  the  time  at  which  the 
payment  was  to  be  made  as  of  the  date  of  the  maturity  of  the 
note;  and  if  the  payment  is  not  made  by  the  maker  within 
the  time  fixed  in  the  note,  there  is  a  breach  of  the  guaranty  on 
which  a  liability  exists,  regardless  of  the  fact  that  no  steps 
have  been  taken  against  the  principal.  A  different  rule  exists 
when  a  defense  is  made  to  a  note  by  reason  of  payment  or  a 
proper  set-off.  In  such  case  a  defense  exists  to  .the  guarantor 
to  the  same  extent  as  to  the  maker.  A  guarantor  may  make 
a  contract  which  is  collateral,  or  one  which  is  independent.  This 
guaranty  was  an  absolute  undertaking  that  the  maker  would 
pay  the  note  when  due,  and  by  the  default  of  the  principal 
an  immediate  liability  existed.  The  undertaking  of  the  guaran- 
tor was  an  independent  contract,  not  resting  on  a  necessity  to 
exhaust  a  remedy  against  the  maker ;  but,  by  the  terms  used  in 
the  guaranty,  it  was  an  undertaking  to  every  subsequent  holder 
that  the  instrument  guarantied  was  perfectly  valid.  By  a 
guaranty  of  this  character,  the  guarantor  undertakes  to  every 
subsequent  holder  that  the  names  of  the  maker  and  previous 
indorsers  are  really  in  the  handwriting  of  those  to  whom  they 
respectively  purport  to  belong ;  and  this  is  carried  to  the  extent 
that,  where  a  promise  has  been  written  upon  the  note  itself,  a 
person  guarantying  the  payment  of  that  note  is  bound,  even 
though  the  names  of  prior  parties,  or  some  one  of  them,  were 
in  fact  forged.  Veazie  v.  Willis,  6  Gray  90.  And  it  has  been 
held  that  where  a  party  to  a  certificate  of  deposit  transferred 
it  to  another,  who  had  no  connection  with,  and  was  ignorant 
of  the  circumstances  attending  its  origin,  with  the  guaranty  of 
the  payment  thereof,  the  guarantor  was  liable  for  the  amount 
of  the  certificate,  although  it  was  void  for  matter  de  hors  its 
face;  and  the  court  said  the  guaranty  was,  in  effect,  the  repre- 
sentation that  the  instrument  or  claim  was  perfectly  valid,  as 
well  as  a  promise  to  pay  it.  Purdy  v.  Peters,  35  Barb.  239. 
,  Under  the  terms  of  this  declaration,  the  guaranty  of  the  pay- 


HOLM  v.   JAMIESON.  499 

merit  of  the  note  by  the  signers  to  that  guaranty  was  a  condition 
precedent  to  its  purchase,  by  the  Central  Trust  &  Savings  Bank, 
and  it  is  further  averred  that  its  acceptance  by  that  bank  was 
because  of  its  reliance  on  the  guaranty.  The  contract  thus 
made  by  the  guarantors  of  the  note  was  a  promise  as  to  its 
legality,  and  a  liability  which  was  not  dependent  on  the  prosecu- 
tion of  a  suit  against  the  maker  of  the  note,  nor  dependent  on 
the  validity  or  legality  of  the  note.  If  the  liability  of  a  guar- 
antor of  commercial  paper  were  dependent  on  extraneous  cir- 
cumstances not  appearing  on  or  suggested  by  the  face  of  the 
instrument,  and  such  guaranty  might  be  rendered  invalid  be- 
cause of  fraud,  forgery,  or  other  circumstances  that  might  be 
set  up  as  between  the  maker  and  the  acceptor  of  the  paper,  it 
would  practically  destroy  the  value  of  commercial  paper,  and 
unsettle  business  transactions,  to  the  great  detriment  of  public 
interests.  The  guaranty  is  a  contract  by  which  the  validity  of 
the  instrument  is  represented,  and  is  binding  on  the  guarantor 
to  the  full  effect  of  such  representation.  Such  being  the  case, 
the  fact  that  the  Western  Wire  Works,  whose  name  was  ap- 
pended to  the  note,  was  placed  there  by  the  treasurer  without 
authority,  thereby  rendering  its  execution,  as  against  the  maker, 
invalid,  did  not  change  the  liability  of  the  guarantor  on  his 
contract,  because  its  effect — the  effect  of  the  contract  of  the 
guarantor — was  to  represent  the  note  as  valid  and  binding. 
Such  liability  existing  by  reason  of  the  guaranty  was  not  de- 
feated because  of  the  want  of  authority  of  the  maker  of  the 
note  to  sign  the  name  of  the  corporation.  The  decree  entered 
declaring  the  note  fraudulent  and  void  because  of.  the  want  of 
authority  in  the  treasurer  to  sign  the  name  of  the  corporation 
thereto  did  not  constitute  a  defense  in  favor  of  the  guarantors, 
and  the  plea  was  bad.  The  demurrer  was  properly  sustained 
by  the  trial  court.  It  was  error  in  the  appellate  court  to  re- 
verse the  same.  The  judgment  of  the  superior  court  of  Cook 
county  is  affirmed,  and  that  of  the  appellate  court  for  the  First 
district  is  reversed. 

Judgment  reversed. 


500  JUDGMENT  AGAINST  PRINCIPAL. 


CHAPTER  XVIII. 

EFFECT  OF  JUDGMENT  AGAINST  PRINCIPAL. 

a.   A  judgment  against  the  principal  is  not  conclusive  against 
the  surety. 

McCONNELL  v.  POOR.     1901. 
113  Iowa  133;  84  N.  W.  968;   52  L.  E.  A.  312. 

Appeal  by  plaintiff  from  a  judgment  of  the  district  court  for 
Des  Moines  county  in  favor  of  defendant  in  an  action  brought 
upon  a  contractor's  bond.  Affirmed. 

Statement  by  LADD,  J.  Evans  entered  into  a  contract  with 
plaintiff,  July  14,  1891,  to  construct  a  dwelling  house  for  him, 
and  on  the  same  day  executed  a  bond  with  defendant  as  surety 
conditioned  "that,  if  the  said  Evan  F.  Evans  shall  duly  per- 
form said  contract,  then  this  obligation  is  to  be  void,  but,  if 
otherwise,  the  same  to  be  and  remain  in  full  force  and  virtue." 
The  house  was  built  and  in  1892  Evans  began  an  action  against 
the  plaintiff  for  a  balance  due.  McConnell  filed  a  cross  petition 
in  which  he  averred  several  breaches  of  the  contract  and  prayed 
for  damages.  The  result  was  a  judgment  against  Evans  for 
$943,  to  recover  which  this  action  was  brought  against  the  de- 
fendant as  surety  on  the  bond.  By  way  of  defense,  he  pleaded 
alterations  in  the  contract  in  four  particulars:  (1)  That  the 
work  was  done  under  the  direction  of  McConnell,  instead  of 
Sunderland,  the  architect,  as  agreed;  (2)  the  broken  ashlar 
work  was  constructed  with  close  joints,  instead  of  being  tuck 
pointed,  as  stipulated;  (3)  the  increased  cost  occasioned  by  this 
change  was  not  estimated  at  the  rate  at  which  the  work  was 
taken,  and  added  to  the  amount  to  be  paid  as  exacted  by  the 
terms  of  the  contract;  and  (4)  other  changes  were  made  with- 
out estimating  the  increased  cost,  as  required  in  the  agreement. 
To  these  defenses  the  plaintiff  pleaded  adjudication  in  Evans 
against  McConnell  as  an  estoppel.  The  defendant  also  answered 
that  he  had  advanced,  in  payment  of  labor  and  material,  with 
McConnell 's  knowledge  and  consent,  a  large  amount  of  money, 
and  was  released  from  liability  on  the  bond  to  that  extent. 
Trial  to  jury  and  from  judgment  on  a  verdict  against  him,  the 
plaintiff  appeals. 

LADD,  J.,  delivered  the  opinion  of  the  court: 


McCONNELL  v.  POOR.  501 

How  far  will  a  surety  on  a  bond  be  bound  by  a  judgment 
against  his  principal  alone?  There  is  no  little  confusion  in 
the  language  of  the  courts  on  this  subject,  and  entire  harmony 
does  not  prevail  in  the  decisions.  This  has  resulted  sometimes 
in  treating  such  a  judgment  as  res  judicata  in  an  action  against 
the  surety,  rather  than  passing  on  the  character  of  the  contract, 
and  simply  holding  him  to  its  performance.  It  is  a  fundamental 
principle  in  jurisprudence  that  every  man  shall  have  his  day 
in  court,  and  shall  be  heard  in  his  own  defense,  and  of  this 
right  he  may  not,  under  the  constitution  and  laws  of  this 
state,  be  deprived.  For  this  reason,  judgment  against  the  prin- 
cipal may  never  foreclose  investigation  of  the  surety's  liability, 
unless  by  virtue  of  the  latter 's  undertaking,  he  has  obligated 
himself  directly  or  by  implication  to  be  bound  thereby.  Where, 
by  the  terms  of  the  bond,  the  surety  is  to  be  bound  by  the  litiga- 
tion to  which  he  is  not  a  party,  the  courts  decide,  not  that  the 
judgment  is  an  adjudication,  because  of  the  connection,  but 
that  he  must  perform  the  contract  as  it  is  written.  Shenandoah 
Nat.  Bank  v.  Reed,  86  la.  136,  53  N.  W.  96.  The  only  ground 
on  which  sureties  on  official  bonds  generally  may  be  regarded  as 
bound  by  the  judgments  against  their  principals  is  that  the 
sureties  by  the  terms  of  the  bond  agree,  expressly  or  impliedly, 
to  abide  the  result  of  litigation  against  their  principals.  This 
principle  is  well  stated  in  Stephens  v.  Shafer,  48  Wis.  54,  33 
Am.  Rep.  796,  3  N.  W.  835.  "The  nature  of  the  contract  in 
official  bonds  is  that  of  a  bond  of  indemnity  to  those  who  may 
suffer  damages  by  reason  of  the  neglect,  fraud,  or  misconduct 
of  the  officer."  The  bond  is  made  with  the  full  knowledge  and 
understanding  that,  in  many  cases,  such  damages  must  be  ascer- 
tained and  liquidated  by  an  action  against  the  officer  for  whose 
acts  the  sureties  make  themselves  liable,  and  the  fair  construc- 
tion of  the  contract  of  the  sureties  is  that  they  will  pay  all 
damages  so  ascertained  and  liquidated  in  an  action  against  their 
principal.  See  also  Masser  v.  Strickland,  17  Serg.  &  R.  354, 
17  Am.  Dec.  668.  This  court  held  in  Charles  v.  Hoskins,  14 
la.  471,  83  Am.  Dec.  378,  that  judgment  against  a  sheriff  might 
be  received  in  evidence  as  fixing,  prima  facie,  the  liability  of 
the  surety.  True,  other  reasons  for  so  holding  than  here  sug- 
gested were  assigned.  But  the  doctrine  of  stare  decisis  has  no 
application  to  the  reasons  given  for  reaching  the  conclusion;  it 
is  limited  to  the  very  point  decided.  The  fallacy  in  the  reason- 


502  JUDGMENT  AGAINST   PRINCIPAL. 

ing  of  that  case,  as  well  as  Lowell  v.  Parker,  10  Met.  309,  43 
Am.  Dec.  436,  on  which  it  was  based,  lies  in  supposing  that, 
because  the  surety  may  claim  the  benefit  of  a  judgment  in  favor 
of  his  principal,  it  follows  that  he  is  concluded  by  one  against 
him.  But  the  surety  is  discharged  by  a  finding  for  his  prin- 
cipal, not  owing  to  the  creditor  being  estopped,  but  for  that  it 
establishes  the  absence  of  liability  of  the  principal,  and,  if  he 
is  not  liable,  the  surety  cannot  be,  as  his  obligation  is  merely 
incidental  to  that  of  the  principal.  Besides,  the  discharge  of 
the  principal  does  not  always  release  the  surety.  If  the  former 
be  an  infant  when  executing  an  instrument,  and  is  discharged 
on  that  ground,  the  surety  may  yet  be  held.  Keokuk  County 
State  Bank  v.  Hall,  106  la.  540,  76  N.  W.  832.  To  the  point 
is  this  language,  found  in  Jackson  v.  Griswold,  4  Hill  528:  "No 
doubt  ...  a  decision  against  the  debt  would  discharge  him 
(the  surety).  That,  however,  is  not  on  the  ground  that  he  is 
a  party,  but  because  the  judgment  or  decree  extinguishes  the 
debt;  and,  the  principal  thing  being  thus  destroyed,  the  inci- 
dent— the  obligation  of  the  surety — is  destroyed  with  it.  The 
effect  is  the  same  as  a  release  by  the  creditor  or  a  payment  by 
the  debtor." 

It  is  sometimes  urged  that  as  the  surety  has  become  responsible 
for  the  debt  or  good  conduct  of  the  principal,  judgment  estab- 
lishes the  fact  on  which  the  surety's  liability  rests.    A  complete 
answer  to  this  is  that  the  fact  has  not  been  established  against 
the  surety,  because  he  has  been  afforded  no  opportunity  to  liti- 
gate the  question.    Under  the  civil  law,  the  surety  was  permitted 
to  defend,  and  even  allowed  to  prosecute  an  appeal  from  the 
judgment  against  the  principal,  though  not  a  party  to  the  judg- 
ment.    As  he  was  given  his  day  in  court,  there  appears  no 
serious  objection  to  binding  him  by  the  litigation.    Much  of  the 
confusion  in  the  decisions  seems  to  have  resulted  from  the  at- 
tempt to  apply  the  rule  of  the  civil  law  binding  the  surety  by 
the  litigation  against  the  principal,  without  allowing  the  former 
the  participation  there  accorded.    We  have  called  attention  to 
the  inapplicability  of  the  doctrine  of  estoppel  in  such  cases, 
as  the  appellant,  with  much  propriety,  has  insisted  that,  if  ap- 
plicable at  all  logically,  it  must  extend  to  bonds  in  private 
transactions.     The  better  opinion  and  the  voice  of  authority  is 
the  other  way,  and  a  judgment  against  the  principal  is  entitled 
to  no  consideration  as  against  the  surety,  unless  by  the  terms 


McCONNELL  v.  POOR.  503 

of  the  contract  the  surety  is  to  be  bound  thereby.  Giltinan  v. 
Strong,  64  Pa.  244;  Fletcher  v.  Jackson,  23  Vt.  581,  56  Am. 
Dec.  98 ;  Arrington  v.  Porter,  47  Ala.  714 ;  Douglass  v.  Rowland, 
24  Wend.  35;  De  Greiff  v.  Wilson,  30  N.  J.  Eq.  *37;  Firemen's 
Ins.  Co.  v.  McMillan,  29  Ala.  147 ;  Jackson  v.  Griswold,  4  Hill. 
523;  2  Van  Fleet,  Former  Adjudication,  §  567;  2  Black  Judgm., 
§592. 

In  Fletcher  v.  Jackson,  23  Vt.  581,  56  Am.  Dec.  98,  the  court, 
speaking  through  REDFIELD,  J.,  said:  "The  general  rule  un- 
doubtedly is  that,  in  a  collateral  undertaking  by  way  of  guar- 
anty, where  a  suit  is  necessary  to  fix  the  liability  of  the  guar- 
antor, the  first  judgment  is  primq  facie  evidence  of  the  default.  > 
But,  where  the  guarantor  is  liable  without  suit  against  the  prin- 
cipal, the  judgment  against  him  is  regarded  as  strictly  matter 
inter  olios.  The  judgment  of  eviction,  in  order  to  show  a  breach 
of  the  covenants  of  warranty,  is  a  case  of  the  first  class.  The 
judgment  of  eviction  is  a  necessary  step  in  making  out  the  lia- 
bility of  the  warrantor;  that  is,  the  casus  foederis.  So,  too, 
generally,  I  apprehend,  when  anyone  undertakes  to  indemnify 
himself  against  the  consequences  of  a  suit,  or  that  a  suit  brought 
shall  be  effectual,  the  judgment  in  either  case,  being  the  casus 
foederis,  is  prima  facie  evidence  of  the  liability.  And,  on  the 
other  hand,  where  the  suit  may,  in  the  first  instance,  be  brought 
directly  against  the  guarantor,  the  judgment  against  the  prin- 
cipal, without  notice  to  the  guarantor,  is  not  evidence;  and  so, 
too,  if  the  guarantor  have  notice  of  suit  against  the  principal, 
he  is  not  obliged  to  concern  himself  in  its  defense,  but  may 
await  a  suit  against  himself  and  then  insist  upon  the  right  to 
contest  the  whole  ground.' 

The  defendant  in  the  case  at  bar  was  not  a  party  to  the  con- 
tract, nor  could  he  have  insisted  on  being  made  a  party  to  the 
action  between  Evans  and  McConnell  thereon.  The  latter  might 
have  brought  suit  against  both  principal  and  surety  on  the  bond, 
but  he  chose,  as  was  his  right,  to  base  his  action  on  the  contract 
alone.  Even  if  these  might  have  been  regarded,  for  some  pur- 
poses, as  one  instrument,  the  appellant  elected  to  treat  them 
as  distinct  and  separate  by  basing  his  suit  against  Evans  solely 
on  the  contract,  and  that  against  Poor  on  the  bond.  The  surety 
may  require  the  principal  to  defend,  for  this  is  his  duty;  but 
the  surety  owes  no  such  duty  to  the  principal,  and  is  under  no 
obligations  to  defend  him.  Poor  was  not  a  party  to  the  action 


504  JUDGMENT  AGAINST   PRINCIPAL. 

on  the  contract,  for  he  could  neither  appear  and  control  the 
suit  nor  appeal  from  the  decree.  Nor  was  he  privy  to  that 
action.  Privity,  says  Greenleaf,  denotes  mutual  or  successive 
relationship  to  the  same  right  of  property.  Privity  in  law  in- 
volves the  right  of  representation,  and  certainly  the  principal, 
in  an  action  against  himself  alone,  may  not  represent  the  surety. 
As  was  said  in  Giltinan  v.  Strong,  64  Pa.  244:  "The  privity  of 
the  surety  with  his  principal  is  in  the  contract  alone,  and  not 
in  the  action."  For  the  acts  or  omissions  of  the  principal  to 
which  the  surety  pledges  himself  in  his  contract  he  is  bound, 
and  it  is  only  in  this  respect  the  principal  represents  the  surety. 
This  is  the  criterion  of  the  competency  of  the  principal 's  declara- 
tions and  admissions.  Where  these  form  a  part  of  the  acts 
or  omissions  of  the  principal  for  which  the  surety  is  bound, 
they  constitute  portions  of  the  res  gestae,  and  may  be  evidence 
against  the  surety.  But  beyond  this  line  clearly  the  surety  can- 
not be  affected  by  the  acts  or  admissions  of  his  principal,  for 
he  is  not  represented  by  him.  True,  Poor  was  the  attorney  for 
Evans  in  the  suit  on  the  contract,  contested  it  with  zeal  and 
persistency,  and  was  charged  with  notice  thereof.  See  Evans 
v.  McConnell,  99  Iowa  332,  53  N.  W.  570,  68  N.  W.  790.  But 
as  surety  he  could  make  no  defense  to  the  action  on  the  con- 
tract. His  client  might  have  revoked  his  authority  at  any  mo- 
ment. He  could  have  gone  further,  and  dismissed  the  action, 
or,  rather,  withdrawn  his  defense  to  the  cross  petition,  without 
consulting  the  surety.  See  Jackson  Vi  Griswold,  4  Hill  528. 
For  the  reasons  stated  we  are  of  opinion  the  district  court  did 
not  err  in  holding  the  defendant  not  bound  by  the  findings 
against  his  principal  in  the  former  action. 

2.  The  apcellant  insists  the  contract  permitted  changes,  and 
this  is  true.  But  the  manner  of  making  them  is  specifically 
pointed  out.  * '  The  value  of  such  changes  or  alterations,  without 
additions  or  deductions,  will  be  estimated  according  to  the  rate 
at  which  the  work  has  been  taken,  and  the  amount  added  to  or 
deducted  from  the  amount  hereinafter  specified."  This  pre- 
cluded the  parties  from  entering  into  arrangements  for  addi- 
tional work,  or  that  of  a  different  character,  without  compensa- 
tion corresponding  relatively  to  the  contract  price.  If  this  were 
not  so,  an  entirely  different  building  from  that  stipulated  might 
have  been  erected  at  the  surety's  cost.  Thus,  the  alleged  change 
in  the  broken  ashlar  work  alone  occasioned  an  additional  ex- 


BARKER  v.  WHEELER.  505. 

pense  of  $1,600  or  more, — more  than  the  balance  claimed.  Whib 
the  plaintiff  had  the  option  of  making  alterations,  he  might  not 
do  so  without  paying  therefor  at  the  rate  fixed  by  the  contract. 
The  evidence  was  in  conflict  on  every  issue  submitted  to  the 
jury,  and  sufficient  to  support  the  verdict.  The  instructions  in 
the  respects  criticised  were  clear  and  accurate,  and  included 
those  requested,  in  so  far  as  correctly  stating  the  law. 

Affirmed. 


BARKER  v.  WHEELER.    1900. 
60  Neb.  470;  83  N.  W.  Eep.  678;  83  Am.  8t.  Rep.  541. 

Error  to  the  district  court  for  Douglas  county.  Tried  below 
before  Scott,  J.  Affirmed  upon  filing  of  remittitur. 

SULLIVAN,  J.  This  proceeding  in  error  brings  here  for  review 
a  judgment  of  the  district  court  in  favor  of  Bert  Glendore 
Wheeler,  a  minor,  and  against  George  F.  Barker  and  William 
S.  Rector.  The  action  was  instituted  by  Miss  Wheeler's  guardian 
to  recover  of  the  defendants,  as  sureties  upon  the  official  bond 
of  James  W.  Eller,  a  sum  of  money  which,  it  is  alleged,  Eller 
received  in  trust  for  the  plaintiff,  and  converted  to  his  own  use 
while  acting  as  judge  of  the  county  court  of  Douglas  county. 
After  stating  that  the  money  in  question  was  paid  into  court 
by  the  administrator  of  the  estate  of  Bert  B.  Wheeler,  deceased, 
in  pursuance  of  an  order  of  the  court,  and  that  such  money  be- 
longed to  the  plaintiff,  and  was  received  by  Eller  as  county 
judge,  the  petition  charges  "that  said  Eller  wrongfully,  fraud- 
ulently and  corruptly  and  in  gross  violation  of  his  duties  as 
such  county  judge,  after  having  obtained  possession  of  said 
funds  as  aforesaid,  thereafter  converted  said  sum  of  $1,935.92, 
the  amount  belonging  to  this  plaintiff,  to  his  own  use,  and  that 
ever  since  said  date,  said  Eller  has  retained  all  of  said  last  men- 
tioned sum,  save  $485.92,  though  payment  thereof  has  been  fre- 
quently demanded  by  plaintiff's  guardian."  The  defendants 
answered,  admitting  that  the  plaintiff  was  an  infant ;  that  Eller 
was  county  judge  of  Douglas  county  during  1892  and  1893,  and 
that  they  were  sureties  upon  his  official  bond.  The  other  aver- 
ments of  the  petition  were  denied  in  general  terms. 

The  first  contention  of  defendants  is  that  the  money  which 


506  JUDGMENT  AGAINST   PRINCIPAL. 

Eller  was  charged  with  having  converted  to  his  own  use  was  not 
received  by  him  in  his  official  capacity,  and  that,  therefore,  the 
misappropriation  of  it  did  not  constitute  a  breach  of  his  official 
bond.  This  precise  question  has  been  already  considered  and 
decided  by  this  court  in  this  case.  By  the  former  decision  it  is 
settled,  so  far  as  this  litigation  is  concerned,  that  ' '  where  a  coun- , 
ty  judge  orders  an  administrator  to  pay  money  into  court  and  the 
latter  does  so  and  the  county  judge  receives  the  money,  it  is, 
on  his  part,  an  official  act  and  he  is  liable  therefor  upon  his 
official  bond."  Wheeler  v.  Barker,  51  Nebr.  846.  The  doctrine 
thus  declared  appears  to  be  sound.  At  any  rate  it  is  the  law 
of  the  case  and  will  not  be  re-examined  at  this  time.  Ripp  v. 
Hale,  45  Nebr.  567;  Coburn  v.  Watson,  48  Nebr.  257;  Omaha 
Life  Ass'n  v.  Kettenback,  55  Nebr.  330;  Hayden  v.  Frederick- 
son,  59  Nebr.  141 ;  Home  Fire  Ins.  Co.  v.  Johansen,  59  Nebr.  349. 
To  show  that  Eller  had  converted  the  plaintiff's  money,  there 
was  produced  at  the  trial  and  received  in  evidence  the  record 
of  a  decree  rendered  by  the  district  court  of  Douglas  county  in 
an  action  brought  by  the  plaintiff  against  Eller  alone.  The 
sureties  contend  that  the  judgment  against  their  principal  is 
not  admissible  against  them  and  does  not  tend  to  establish  their 
liability,  while  the  guardian  insists  that  it  is  not  only  competent, 
but  indisputable  proof.  We  think  the  record  was  sufficiently 
identified;  that  it  was  properly  received  and  that  it  constituted 
priina  facie  evidence  of  the  alleged  conversion.  In  Fire  Associa- 
tion of  Philadelphia  v.  Ruby,  49  Nebr.  584,  it  was  held  that  a 
.judgment  of  amercement  against  an  officer  is  prima  facie  evi- 
dence against  his  sureties  when  sued  upon  their  bond.  This 
decision  seems  to  be  supported  by  the  preponderance  of  adjudged 
cases  and  it  will  be  adhered  to.  Graves  v.  Bulkley,  25  Kan.  249 ; 
Fay  v.  Edmiston,  25  Kan.  439;  Lipscomb  v.  Potsell,  38  Miss. 
476 ;  Charles  v.  Hoskins,  14  la.  471 ;  Stephens  v.  Shafer,  48  Wis. 
54 ;  Beauchaine  v.  McKinnon,  55  Minn.  318 ;  Norris  v.  Mersereau, 
74  Mich.  687.  Thomas  v.  Markmann,  43  Nebr.  823,  and  Lewis 
v.  Mills,  47  Nebr.  910,  holding  that  such  a  judgment  is  con- 
clusive upon  the  sureties,  appear  to  be,  in  part  at  least,  based 
upon  Pasewalk  v.  Bollmann,  29  Nebr.  519,  which  merely  decides 
that  a  surety  who  agrees  to  pay  any  judgment  that  may  be 
recovered  against  'his  principal  must,  in  the  absence  of  fraud 
or  collusion,  abide  by  his  contract.  That  the  court  in  the  last 
mentioned  case  clearly  recognized  the  distinction  between  agree- 


BARKER  v.  WHEELER.  507 

ments  of  sureties  to  be  bound  by  judgment  against  their  prin- 
ciples and  general  undertakings  to  answer  for  official  miscon- 
duct is  shown  by  the  following  statement  in  the  opinion:  "In 
the  case  of  most  official  bonds  the  sureties  do  not  promise  to 
pay  any  judgment  rendered  against  the  principal,  hence  a  judg- 
ment against  the  official  on  such  a  bond  is  not  conclusive  upon 
the  sureties  where  the  latter  had  no  notice  of  the  suit."  The 
defendants  in  the  present  case  did  not  agree  to  satisfy  any  judg- 
ment that  might  be  recovered  against  their  principal.  Their 
undertaking  was,  in  general  terms,  that  he  would  perform  his 
official  duty.  Upon  the  question  of  whether  he  had  been  guilty 
of  misconduct  in  office,  they  were  entitled  to  be  heard.  It  is 
contrary  to  natural  justice  that  they  should  be  concluded  by  a 
judgment  to  which  they  were  not  parties,  and  by  which  they 
did  not  agree  to  be  bound.  While  Thomas  v.  Markmann,  supra, 
and  Lewis  v.  Mills,  supra,  are  not  without  the  support  of  re- 
spectable authority,  we  are  of  opinion  that  they  extend  the  lia- 
bility of  the  surety  beyond  the  terms  of  his  agreement  and  dis- 
regard entirely  the  strict  rule  of  construction  applicable  to  such 
contracts.  To  the  extent  that  those  cases  are  in  conflict  with 
Fire  Association  of  Philadelphia  v.  Ruby,  supra,  they  are  over- 
ruled. 

A  further  contention  of  defendants  is  that  the  evidence  given 
at  the  trial  does  not  establish  a  breach  of  the  condition  of  the 
bond  in  suit.  We  think  it  does.  The  petition  alleged  that  Eller, 
as  county  judge,  received  the  plaintiff's  money,  and  afterwards 
converted  it  to  his  own  use.  The  answer  merely  denied  this 
charge;  it  did  not  plead  payment  or  accord  and  satisfaction. 
If  Eller  received  the  money  and  misappropriated  it  during  his 
term  of  office,  or  failed  to  turn  it  over  to  the  proper  person  at 
the  close  of  his  term,  he  was  guilty  of  official  misconduct.  The 
decree  in  the  case  brought  by  the  plaintiff  against  Eller  alone 
was  rendered  on  December  18,  1897,  and  is  based  in  part  upon 
the  following  findings : 

"2.  That  on  the  29th  day  of  March,  1892,  said  defendant 
while  acting  as  judge  of  said  court  and  as  such  court  and  judge 
thereof,  obtained  possession  of  the  sum  of  $1,935.19  belonging 
to  plaintiff,  said  money  being  inherited  by  plaintiff  from  her 
deceased  father,  Bert  G.  Wheeler,  whose  estate  was  then  in 
process  of  settlement  in  said  county  court. 

That  of  said  money  the  sum  of  $1,450,  defendant  ever  since 


508  JUDGMENT  AGAINST   PRINCIPAL. 

said  last  mentioned  date,  has  failed,  neglected  and  refused  to 
pay  to  the  guardian  or  plaintiff,  or  any  part  thereof." 

These  findings  show  that  Eller  received  the  plaintiff's  money 
by  virtue  of  his  office,  and  that  he  retained  the  greater  portion 
of  it  after  he  ceased  to  be  county  judge.  According  to  these 
findings,  Eller  must  have  been  guilty  of  conversion  on  or  before 
January  3,  1894. -It  was  lawful  for  him,  as  judge  of  the  county 
court,  to  receive  the  money,  but  it  was  not  lawful  for  him  to 
retain  it  after  the  expiration  of  his  official  term.  The  evidence 
on  the  part  of  the  plaintiff  conclusively  established  a  conversion, 
and,  the  defendants  having  failed  to  plead  or  prove  anything 
in  avoidance,  the  only  controverted  question  was  the  amount  of 
their  liability.  While  there  is  evidence  in  the  record  tending 
to  prove  that  Eller  obtained  the  plaintiff's  money  with  intent  to 
cheat  and  defraud  her,  it  is  not  certain  that  he  actually  ap- 
propriated any  part  of  such  money  to  his  own  use  before  the 
end  of  his  term.  The  defendant  offered  to  show  that  there  was  -V 
no  default  on  the  part  of  their  principal  prior  to  January  4, 
1894,  but  the  trial  court  rejected  the  evidence  on  the  theory  that 
the  decree  against  Eller  fixed  indisputably  the  liability  of  his 
sureties  and  the  extent  of  such  liability.  The  proffered  evidence 
should  have  been  received;  it  was  error  to  exclude  it.  Notwith- 
standing this  error,  the  plaintiff  was  entitled  on  May  lljJLSOD, 
the  day  the  verdict  was  returned,  to  a  judgment  for  $1,985.13^  • 
and  the  judgment  for  that  amount  with  jnterest  will  be  affirmed^ 
if  there  be  a  remission  of  the  excess  within  sixty  days.  In  case 
the  plaintiff  does  not  file  a  remittitur  for  such  excess  with  the 
clerk  of  this  court  within  the  time  aforesaid,  the  judgment  will 
be  reversed. 

Judgment  accordingly. 


GRIFFITH  v.  RUNDLE.  509 

CHAPTER  XIX. 

CONSTRUCTION  CONTRACTS. 

a.  Third  persons  for  whose  benefit  a  construction  bond  is  given 
can  recover  thereon  though  a  stranger  to  it. 

GRIFFITH  v.  RUNDLE.    1900. 
23  Wash.  453;  55  L.  B.  A.  381;   63  P.  199. 

Appeal  by  defendants  from  a  judgment  of  the  Superior  Court 
for  Spokane  county  in  favor  of  plaintiffs  in  an  action  brought 
to  hold  sureties  on  a  contractor's  bond  liable  for  unpaid  labor 
and  materials  which  went  into  the  construction  of  the  building. 
Affirmed. 

The  facts  are  stated  in  the  opinion. 

REAVIS,  J.,  delivered  the  opinion  of  the  court: 

In  July,  1897,  defendant  Rundle  entered  into  a  contract  with 
the  United  States  for  the  construction  of  certain  buildings  at 
the  army  post  near  Spokane.  At  the  time  the  contract  was 
executed,  a  bond  was  duly  executed  in  accordance  with  the  pro- 
visions of  the  act  of  Congress  approved  August  13,  1894  (28 
Stat.  at  L.  p.  278,  chap.  280).  The  law  is  entitled  "An  Act 
for  the  Protection  of  Persons  Furnishing  Materials  and  Labor 
for  the  Construction  of  Public  Works. ' '  Its  provisions  are  sub- 
stantially that  any  person  entering  into  a  formal  contract  with 
the  United  States  for  the  construction  of  any  public  building 
shall  be  required,  before  commencing,  to  execute  the  usual  penal 
bond  with  good  and  sufficient  sureties,  with  the  additional  obliga- 
tions that  the  contractor  shall  promptly  make  payments  to  all 
persons  supplying  him  labor  and  materials  in  the  prosecution 
of  the  work  provided  for  in  the  contract ;  that  any  persons  per- 
forming labor  or  furnishing  materials  for  such  work  shall  be 
furnished  on  application  with  a  certified  copy  of  the  contract 
and  bond  upon  which  the  person  supplying  labor  and  materials 
shall  have  a  right  of  action,  and  be  authorized  to  bring  suit  in 
the  name  of  the  United  States  against  the  contractor  and  sureties, 
provided  that  such  action  shall  involve  the  United  States  in 
no  expense.  The  defendants  Henley  and  Snodgrass  were  sure- 
ties upon  the  bond,  the  penal  sum  of  which  was  $10,000.  While 
the  contractor,  Rundle,  was  engaged  in  the  construction  of  the 
buildings  under  his  contract,  materials  were  furnished  by  plain- 
tiffs to  tjhe  contractor,  and  used  by  him  in  the  work  of  construe- 


510  CONSTRUCTION   CONTRACTS. 

tion.  Subsequently,  and  while  the  buildings  were  but  partially 
completed,  the  United  States,  in  the  exercise  of  the  right  re- 
served in  the  contract,  took  the  work  out  of  the  hands  of  Bundle, 
and  at  the  same  time  notified  the  sureties,  Henley  and  Snod- 
grass,  of  its  action.  Thereupon  the  sureties  took  up  the  work 
of  construction,  and  completed  the  buildings  according  to  Bun- 
dle's  contract,  and  the  United  States  accepted  their  work  as 
full  performance  of  the  contract.  For  defense  to  the  action, 
after  some  denials,  the  sureties  set  up  the  fact  that  Bundle  did 
not  complete  the  contract,  but  the  sureties,  under  its  terms, 
made  full  performance,  which  was  duly  accepted  by  the  United 
States,  and  that  in  their  completion  of  the  contract  they  were 
necessarily  compelled  to  expend  sums  in  excess  of  $10,000,  the 
amount  of  the  penalty  in  the  bond.  **  t*ss> 

1.  The  several  assignments  of  error  made  by  the  appellants 
may  be  grouped  together,  and  stated  as  the  refusal  of  the  su- 
.perior  court  to  admit  testimony  under  the  affirmative  defense 
set  forth  in  the  answer.  The  court  excluded  any  evidence  with 
reference  to  the  United  States  having  demanded  of  the  sureties 
the  performance  of  the  contract  or  the  payment  of  damages.  It 
is  maintained  by  counsel  for  appellants  that  the  limit  of  the 
liability  of  the  sureties  was  the  penalty  stated  in  the  bond, 
$10,000;  that,  if  the  sureties  had  not  undertaken  the  perform- 
ance of  the  contract  of  their  principal,  the  entire  damages  to 
both  the  government  and  the  respondents  and  all  of  the  other 
claimants  for  labor  and  materials  would  have  been  liquidated 
by  the  payment  of  $10,000 ;  that  the  fact  that  the  sureties  neces- 
sarily expended  more  than  that  sum  in  the  completion  of  the 
contract,  and  over  the  contract  price,  relieves  them  from  further 
liability.  It  is  also  maintained  that,  if  the  contract  had  not 
been  completed,  the  government  is  a  preferred  creditor,  and  its 
claim  would  exhaust  the  penalty,  and  there  would  be  no  funds 
left  for  the  satisfaction  of  plaintiffs  and  other  claimants  of  like 
character;  and  counsel  maintain  that  it  is  necessary  to  deter- 
mine the  question  of  priority  of  rights  as  between  the  govern- 
ment and  these  claimants.  In  a  case  involving  these  facts, — 
United  States  use  of  Fidelity  Nat.  Bank  v.  Bundle, — in  the 
United  States  circuit  court,  judgment  was  entered  in  conformity 
with  the  contention  of  counsel  here.  But  the  cause  was  after- 
wards reversed  by  the  United  States  circuit  court  of  appeals  (40 
C.  C.  A.  450,  100  Fed.  400),  and  the  appellate  court  observed: 


GRIFFITH  v.  BUNDLE.  511 

"The  undisputed  facts  of  the  present  ease  .are  such  that  it  is  not 
necessary  to  .consider  the  question  presented  in  the  court  below, 
and  argued  here,  whether  if  the  United  States  had  any  cause  of 
action  upon  the  bond  in  suit,  its  claim  should  be  preferred  to 
that  of  the  laborers  and  material  men ;  for,  as  has  already  been 
observed,  the  United  States  received  full  performance  of  the 
contract,  and  therefore  has  no  cause  of  complaint."  In  the 
case  of  United  States  use  of  Annistion  Pipe  &  Foundry  Co.  v. 
National  Surety  Co.,  34  C.  C.  A.  526,  92  Fed.  549,  such  a  bond 
was  under  consideration  by  the  court,  and  it  was  there  adjudged 
that  the  bond  was  intended  to  perform  a  double  function :  First, 
to  secure  the  faithful  performance  of  the  contract  to  the  govern- 
ment ;  and,  second,  to  protect  third  persons  from  whom  the  con- 
tractor might  obtain  labor  or  materials  in  the  prosecution  of 
the  work.  In  its  second  aspect,  the  bond,  by  virtue  of  the  statute, 
contains  a  separate  and  distinct  agreement  between  the  obligors 
and  such  third  persons  as  to  which  the  agency  of  the  government 
ceases  when  the  bond  is  given  and  approved,  and  subsequent 
changes  in  the  contract,  agreed  upon  between  the  government 
and  the  contractor,  though  without  the  knowledge  or  consent  of 
the  surety,  will  not  release  the  surety  from  liability  to  persons 
who  supply  labor  or  materials  thereunder.  The  court  observed 
of  the  statute  under  which  the  bond  is  executed:  "It  is  also 
noticeable  that  in  its  title  the  act  professes  to  be  one  for  the 
benefit  of  persons  furnishing  materials  and  labor,  and  that  in 
the  body  of  the  act  the  form  of  the  condition  to  be  inserted  in 
the  bond  for  the  benefit  of  the  United  States  is  not  in  terms 
prescribed,  the  only  provision  in  that  regard  being  that  the  bond 
shall  be  'the  usual  penal  bond;'  meaning,  evidently,  such  an 
obligation  for  the  government's  own  protection  as  it  had  long 
been  in  the  habit  of  exacting  from  those  with  whom  contracts 
were  made  for  the  doing  of  public  work.  On  the  other  hand, 
the  condition  for  the  benefit  of  persons  who  might  furnish  ma- 
terials or  labor  is  carefully  prescribed.  Obviously,  therefore, 
Congress  intended  to  afford  full  protection  to  all  persons  who 
supplied  materials  or  labor  in  the  construction  of  public  build- 
ings or  other  public  works,  inasmuch  as  such  persons  could  claim 
no  lien  thereon,  whatever  the  local  law  might  be,  for  the  labor 
and  materials,  so  supplied.  There  was  no  occasion  for  legisla- 
tion on  the  subject  to  which  the  act  relates,  except  for  the  pro- 
tection of  those  who  might  furnish  materials  or  labor  to  persons 


512  CONSTRUCTION  CONTRACTS. 

having  contracts  with  the  government.  .  .  .  Viewed  in  its 
latter  aspect,  the  bond,  by  virtue  of  the  operation  of  the  statute, 
contains  an  agreement  between  the  obligors  therein  and  such 
third  parties  that  they  shall  be  paid  for  whatever  labor  or  ma- 
terials they  may  supply  to  enable  the  principal  in  the  bond  to 
execute  his  contract  with  the  United  States.  The  two  agreements 
which  the  bond  contains — the  one  for  the  benefit  of  the  govern- 
ment, and  the  one  for  the  benefit  of  third  persons — are  as  distinct 
as  if  they  were  contained  in  separate  instruments,  the  govern- 
ment's name  being  used  as  obligee  in  the  latter  agreement  merely 
as  a  matter  of  convenience."  In  the  case  of  Dewey  v.  State  ex 
rel.  McCollum,  91  Ind.  173,  it  was  substantially  held  that  for 
any  breach  of  the  second  condition  of  such  a  bond  by  the  con- 
tractor the  right  of  action  was  in  the  laborer  or  the  material  man, 
that  such  right  of  action  could  not  be  defeated  or  abridged 
by  any  act  done  by  the  obligee  in  the  bond  after  the  bond  had 
been  taken  and  approved;  and  it  was  ruled  that  changes  made 
in  the  contract  by  the  parties  thereto — that  is,  the  contractor  and 
the  public  authorities — after  the  bonds  had  been  accepted  would 
not  deprive  material  men  of  their  rights  to  recover  against  sure- 
ties in  the  bond.  To  the  same  effect  is  Conn  v.  State  ex  rel. 
Stutsman,  125  Ind.  514,  25  N.  E.  443,  and  the  same  principle 
is  affirmed  in  Doll  v.  Grume,  41  Neb.  655,  59  N.  W.  806 ;  Kauf- 
man v.  Cooper,  46  Neb.  644,  65  N.  W.  796;  Steffes  v.  Lemke, 
40  Minn.  27,  41  N.  W.  302.  The  practical  effect  of  the  statute, 
and  others  of  similar  character  in  a  number  of  the  states,  seems 
to  be  to  confer  a  special  lien  in  favor  of  such  persons  who  furnish 
labor  and  material,  and  to  substitute  the  bond  in  place  of  the 
public  building  as  a  thing  upon  which  the  lien  is  to  be  charged. 
Such  liens  evidently  appear,  from  an  inspection  of  the  current 
legislation,  to  be  favored,  and  the  courts  have  usually  adopted 
a  liberal  rule  of  construction  in  their  enforcement. 

2.  It  is  pertinent  to  suggest  that  in  the 'performance  of  the 
unfinished  contract  by  the  sureties,  if  they  had  expended  less 
than  the  amount  to  be  paid  by  the  government  on  the  completion 
of  the  contract,  the  excess  or  profit  would  have  belonged  to  them, 
and  if  they  undertook  the  completion  of  the  contract  and  sus- 
tained a  loss,  it  would  seem  that  it  should  fall  on  them.  As 
sureties  under  the  terms  of  the  contract,  they  might  elect  to  com- 
plete it  upon  default  of  their  principal,  hut  such  completion  was 
not  the  full  performance  of  the  contract  by  the  principal  him- 


RIPLEY    BUILDING    CO.    v.    COORS.  513 

self.  It  satisfied  the  sureties '  contract  with  the  government,  but, 
as  observed  by  the  circuit  court  of  appeals  in  United  States  use 
of  Fidelity  Nat.  Bank  v.  Bundle,  40  C.  C.  A.  450,  100  Fed.  400, 
the  United  States  is  not  a  claimant  here,  and  the  question  of 
priority  of  claims  to  the  amount  due  from  the  sureties  under 
the  terms  of  the  bond  is  not  involved  in  this  case. 

The  judgment  of  the  Superior  Court  must  be  affirmed. 

DUNBAR,  Ch.  J.,  and  FULLERTON  and  ANDERS,  JJ.,  concur. 


6.  A  surety  cannot,  upon  discovery  that  the  principal  has  fraud- 
ulently procured  him  to  sign  his  bond,  escape  liability  by 
notifying  the  obligee. 

A.  S.  RIPLEY  BUILDING  CO.  v.  COORS.    1906. 
—  Col.  —;   84  Pac.  Rep.  817. 

Appeal  from  District  Court,  Arapahoe  county;  P.  L.  Palmer, 
Judge. 

Action  by  Adolph  Coors  against  the  A.  S.  Ripley  Building 
Company  and  the  American  Surety  Company.  Judgment  for 
plaintiff.  Defendants  appeal.  Affirmed. 

MAXWELL,  J.  The  appellant  building  company  contracted 
with  appellee  to  do  the  carpenter  and  joiner  work  upon  a  build- 
ing which  appellee  proposed  to  erect,  according  to  the  terms 
and  specifications  of  a  contract  in  writing.  For  the  faithful 
performance  of  the  terms,  conditions  and  specifications  of  the 
contract  by  the  building  company,  appellant  surety  company 
executed  a  bond  to  appellee  in  the  sum  of  $4,000,  the  conditions 
of  which  bond  are  as  follows:  "Now,  if  the  said  bounden  A.  S. 
Ripley  Building  Company  shall  faithfully  construct  such  work 
in  strict  accordance  with  and  hi  all  things  perform  the  said 
contract  without  delay  and  save  the  said  Adolph  Coors,  his  heirs 
and  assigns,  harmless  from  mechanics'  liens  or  damage  of  any 
and  every  kind,  by  reason  of  the  construction  of  said  work,  then 
the  above  obligation  to  be  null  and  void,  otherwise  to  be  and 
remain  in  full  force  and  effect."  This  suit  was  to  recover  dam- 
ages for  a  breach  of  the  conditions  of  the  bond. 

To  the  complaint  the  surety  company  interposed  four  defenses. 


514  CONSTRUCTION  CONTRACTS. 

The  second  and  third  defenses  are  those  relied  upon  for  a  re- 
versal of  the  judgment  rendered  by  the  court  below.  In  sub- 
stance, the  second  defense  is  that  at  the  time  the  surety  company 
executed  and  delivered  the  bond  in  suit,  the  building  company 
induced  the  surety  company  to  execute  the  bond  upon  representa- 
tions that  the  president  of  the  building  company,  with  others, 
would  indemnify  the  surety  company  against  loss  or  damage  by 
reason  of  the  execution  of  such  bond  by  the  surety  company,  and 
that  its  president  was  the  owner  of  real  estate  in  the  city  of 
Denver  of  the  value  of  $25,000;  that  relying  upon  such  repre- 
sentation the  surety  company  executed  the  bond;  that  such  rep- 
resentations were  false  and  untrue,  and  known  to  be  such  by 
the  building  company  and  its  president,  at  the  time  they  were 
made ;  that  the  surety  company  discovered  that  such  repre- 
sentations were  false  and  untrue  on  or  before  the  14th  day  of 
November,  1899,  and  immediately  notified  appellee  that  the  bond 
had  been  obtained  by  false  representations,  and  demanded  the 
release  and  delivery  of  the  same,  and  also  notified  appellee  that 
it  would  not  be  responsible  for  any  damages  arising  to  appellee 
by  reason  of  the  nonfulfillment  of  the  conditions  of  the  contract ; 
that  such  notice  was  served  on  appellee  on  the  14th  day  of 
November,  1899,  before  anything  was  done  under  the  contract 
and  before  appellee  was  in  anywise  damnified.  In  substance, 
the  third  defense  is  that  appellee  did  not  file  in  the  office  of  the 
county  clerk  and  recorder  of  the  county  of  Arapahoe  where  the 
property  is  situated,  the  contract  or  memorandum  thereof,  re- 
quired by  the  statutes  of  this  state  (3  Mills'  Ann.  St.  Rev.  Supp., 
§  2867),  and  that  by  reason  of  such  failure,  appellee  became  lia- 
ble as  an  original  contractor;  that  the  material  man's  lien  which 
was  filed  was  for  material  furnished,  not  by  the  building  com- 
pany, but  by  appellee  as  an  original  purchaser;  that  such  lien 
was  not  created  by  reason  of  the  violation  of  any  of  the  terms 
of  the  contract,  and  did  not  grow  out  of  the  contract. 

The  reply  admitted  the  service  of  the  notice  alleged  in  the 
second  defense,  and  denied  all  the  other  allegations  thereof.  It 
also  admitted  failure  upon  the  part  of  appellee  to  file  the  con- 
tract, or  a  memorandum  thereof,  in  the  office  of  the  clerk,  and 
recorder  as  alleged  in  the  third  defense,  denying  all  the  other 
allegations  of  such  defense.  Upon  the  trial,  which  was  to  the 
court  without  a  jury,  the  surety  company,  by  a  witness  then  on 
the  stand,  offered  to  prove  that  at  the  time  of  the  application 


RIPLEY    BUILDING    CO.    v.    COORS.  515 

for  the  execution  'of  the  bond  Mr.  Kipley,  as  president  of  the 
building  company,  offered  to  furnish  the  surety  company,  as 
indemnitors,  himself  and  others;  that  Mr.  Ripley  represented 
himself  as  the  owner  of  real  estate  worth; about  $25,000;  that 
relying  upon  this  representation  the  surety  company  executed 
the  bond;  that  upon  investigation  it  was  found  that  the  repre- 
sentations of  Mr.  Ripley  were  false  and  untrue;  that  he  was 
the  owner  of  no  real  estate  whatever;  that  on  the  14th  day  of 
November  a  written  notice  was  served  upon  appellee  that  the 
surety  company  withdrew  from  the  .bond,  and  would  no  longer 
be  bound  thereby,  which  notice  was  served  upon  appellee  No- 
vember 14,  1899 ;  that  at  the  date  such  notice  was  served  noth- 
ing had  been  done  under  the  contract.  Upon  objection  the  offer 
of  this  testimony  was  refused.  This  ruling  of  the  court  is  as- 
signed as  error. 

Counsel  for  appellant  surety  company  concedes  the  rule  to 
be  as  stated  by  Brandt  in  his  work  on  Suretyship  and  Guaranty, 
§  406.  ' '  If  the  principal,  by  fraud,,  induces  the  surety  to  be- 
come bound,  but  the  obligee  has  no  notice  thereof,  such  fraud 
will,  as  a  general  rule,  be  no  defense  to  the  surety."  The  argu- 
ment is  that  it  is  apparent  from  the  rule  as  above  stated,  that 
if  the  obligee  does  have  notice  of  the  fraud  of  the  principal,  it 
would  be  a  perfect  defense,,  and  that  inasmuch  as  the  obligee 
was  notified  of  the  alleged  fraud  perpetrated  upon  the  surety 
company  by  the  principal,  before  anything  had  been  done  under 
the  contract,  therefore,  the  appellee  in  this  case  comes  within 
the  rule  as  above  stated.  No  authorities  are  cited  in  support  of 
the  position  of  appellant  upon  this  point,  and  counsel  very 
frankly  admit  that  they  have  been  unable  to  find  any.  A  num- 
ber of  cases  are  cited  and  discussed,  which  by  analogy,  it  is 
claimed,  should  rule  this  point  favorably  to  the  position  taken 
by  the  surety  company.  It  will  be  necessary  to  review  these 
authorities.  The  weakness  of  the  argument,  and  the  fallacy  of 
the  conclusion  arrived  at  by  counsel,  is  due  to  the  fact  that  the 
facts  in  the  cases  cited,  clearly  distinguish  them  from  the  case 
at  bar. 

The  whole  argument  is  based  upon  the  proposition  that  noth- 
ing was  done  under  the  contract.  The  record  discloses  that  the 
bond  and  contract  were  executed  by  all  parties  on  the  30th  day 
of  October;  the  notice  relied  upon  was  served  on  the  14th  day 
of  November  following,  upon  which  date  appellee  had  bound 


516  CONSTRUCTION  CONTRACTS. 

himself  by  a  written  contract  to  the  payment  of  the  sum  of 
$6,750  upon  the  performance  by  the  building  company  of  the 
terms  of  that  contract.  The  cancellation  by  him  at  this  time  of 
such  contract  would  have  made  him  liable  to  a  claim  and  an 
action  for  damages  by  the  building  company  for  the  breach  of 
his  contract,  the  seriousness  of  which,  in  all  probability,  would 
only  have  been  established  at  the  termination  of  protracted  and 
expensive  litigation.  Sureties  should  not  be  allowed  to  relieve 
themselves  of  liability  imposed  upon  them  by  their  voluntary 
contracts,  by  a  mere  notice  to  the  obligee,  that  they  were  induced 
to  enter  into  such  contracts  relying  upon  false  statements  made 
to  them  by  the  principal,  of  which  statements  the  obligee  was 
entirely  ignorant,  unless  there  be  a  stipulation  in  the  contract 
of  indemnity  to  such  effect.  The  rule  is  thus  stated  in  27  A. 
&  E.  Ency.  of  Law,  §  447:  "A  surety  who  has  signed  a  contract 
of  suretyship  cannot  ordinarily  and  before  the  breach  of  the 
contract  by  giving  notice  terminate  his  suretyship  or  escape 
future  liability  for  his  principal  unless  a  stipulation  to  that 
effect  appears  in  the  contract" — citing  cases.  A  number  of 
cases  are  cited  by  counsel  for  appellant,  to  the  effect  that  a 
surety  or  guarantor,  upon  a  continuing  contract  of  suretyship 
or  guaranty,  may,  upon  reasonable  notice  in  writing,  terminate 
all  future  liability  arising  under  the  contract.  These  cases  are 
easily  distinguishable  from  the  case  under  consideration,  in  that 
here  the  contract  was  not  a  continuing  contract.  It  is  our  con- 
clusion that  the  court  did  not  err  in  refusing  to  admit  the  testi- 
mony offered. 

The  third  defense  proceeds  upon  the  theory  that  the  only 
breach  of  the  condition  of  the  bond  alleged  by  appellee  and  re- 
lied upon  for  a  recovery,  was  the  filing  of  a  lien  against  the 
property  of  appellee.  We  do  not  so  read  the  complaint.  The 
complaint  alleges,  in  substance,  that  the  building  company,  in 
violation  of  its  contract,  did  not  furnish  all  the  materials  and 
fully  and  faithfully  execute  the  work  mentioned  and  referred 
to  in  the  contract  for  the  sum  of  $6,750,  the  sum  provided  for 
in  the  contract  in  this,  viz.,  that  the  building  company  caused 
to  be  furnished  by  the  Hallack  &  Howard  Lumber  Company  a 
large  amount  of  material  to  be  used,  and  which  was  used  by 
the  building  company  in  the  construction  of  said  building  under 
its  contract,  which  should  have  been  furnished  and  paid  for 
by  the  building  company,  but  which  the  building  company 


RIPLEY    BUILDING    CO.    v.    COORS.  517 

neglected  and  refused  to  do;  that  the  lumber  company  caused 
a  lien  to  be  filed  on  the  lots  and  buildings  of  plaintiff,  of 
which  the  surety  company  had  due  and  timely  notice ;  that 
thereafter  the  lumber  company  commenced  its  suit  to  establish 
and  enforce  its  lien,  of  which  the  surety  company  had  due  and 
timely  notice;  that  thereafter  judgment  was  rendered  against 
the  building  company,  and  establishing  a  lien  against  the  prop- 
erty of  plaintiff,  for  the  sum  of  $1,719.68,  which  amount  with 
interest,  plaintiff  has  been  compelled  to  and  has  paid. 

The  bond  sued  on,  by  its  express  terms  refers  to  the  contract, 
and  the  two  instruments  should  therefore  be  construed  together, 
to  determine  the  liability  of  the  surety  company.  The  contract, 
in  substance,  provides  that  the  building  company,  at  its  own 
costs  and  charges,  is  to  provide  all  materials  of  every  descrip- 
tion needful  for  the  due  performance  of  the  contract,  for  which 
the  building  company  is  to  receive  the  sum  of  $6,750.  The  con- 
ditions of  the  bond  are  that  the  building  company  shall  faith- 
fully construct  the  work  in  strict  accordance  with  the  contract, 
and  save  the  obligee  harmless  from  damage  of  any  and  every 
kind.  Construction  of  the  work  specified  in  the  contract,  at  an 
expense  to  the  owner  of  over  $1,700  in  excess  of  the  contract 
price,  is  certainly  a  violation  of  the  terms  of  the  contract,  and 
therefore  a  breach  of  the  conditions  of  the  bond  above  stated, 
for  which  breach  an  action  will  lie.  No  argument  or  citation 
of  authorities  is  necessary  to  support  this  position.  In  our  view 
the  third  defense  relied  upon  by  appellant  did  not  state  a  de- 
fense to  the  cause  of  action  alleged,  and  no  error  was  committed 
by  the  court  in  so  ruling. 

It  is  said  that  the  statute  relied  upon  in  this  defense  (3  Mills* 
Ann.  St.  Rev.  Supp.,  §  2867)  provides  that,  if  the  owner  fails 
to  file  the  contract  or  a  memorandum  thereof  as  therein  pro- 
vided, materials  furnished  by  all  persons  shall  be  deemed  to 
have  been  furnished  at  the  personal  instance  of  the  owner  and 
the  persons  furnishing  such  materials  shall  have  a  lien  for  the 
value  thereof;  that  the  surety  company  had  a  right  to  expect 
that  the  appellee  would  do  his  full  duty  to  protect  his  property 
from  liens ;  that  not  having  done  so  he  cannot  look  to  the  surety 
company  for  indemnity  for  failing  to  do  that  which  he  should 
have  done.  The  statute  is  to  the  effect  stated,  but  it  does  not 
follow  that  the  conclusion  stated  by  counsel  is  the  rule  to  be 
applied  in  this  case,  under  the  allegations  of  the  complaint  here- 


518  EMPLOYERS'   LIABILITY  BONDS. 

in.  Under  a  complaint  which  alleged  as  the  sole  breach  of  the 
condition  of  the  bond,  the  filing  of  a  mechanic 's  lien,  there  would 
be  force  in  the  argument  of  counsel,  but  that  is  not  this  case, 
and  we  express  no  opinion  upon  this  proposition. 

In  the  fullings  relied  upon  for  a  reversal,  there  was  no  error, 
and  the  judgment  will  be  affirmed. 

Affirmed. 

The  CHIEF  JUSTICE  and  GUNTER,  J.,  concur. 


CHAPTER  XX. 

EMPLOYERS'  LIABILITY  BONDS. 

a.   Employers'  Liability  Bonds  are  construed  as  insurance  poli- 
cies. 

CASHMAN  v.  LONDON  GUARANTEE  &  ACCIDENT  CO. 

1905. 

187  Mass.  188;  72  N.  E.  Rep.  957. 

KNOWLTON,  C.  J.  This  case  was  submitted  upon  an  agreed 
statement  of  facts  and  evidence,  in  which  it  was  stipulated  that 
if  the  defendant  is  entitled,  as  matter  of  law,  to  a  judgment  in 
its  favor  on  the  facts  and  evidence,  judgment  is  to  be  so  entered ; 
otherwise  judgment  is  to  be  entered  for  the  plaintiff  in  a  stated 
sum.  Judgment  having  been  entered  for  the  plaintiff,  the  de- 
fendant appealed,  and  the  question  before  us  is  whether  there 
is  anything  in  the  facts  and  evidence  to  warrant  a  finding  for 
the  plaintiff. 

The  action  is  to  recover  upon  a  policy  of  insurance  "against 
loss  from  common  law  or  statutory  liability  for  damages  on 
account  of  bodily  injuries,  fatal  or  nonfatal,  accidentally  suf- 
fered within  the  period  of  this  policy  by  any  employee  or  em- 
ployees of  the  assured,  while  on  duty  at  the  places  and  in  the 
occupations  mentioned  in  the  schedule  hereinafter  given,  and 
during  the  continuance  of  the  work  described  in  said  schedule. ' ' 
The  occupation  of  the  plaintiffs  mentioned  in  the  schedule  was 
that  of  stevedores  and  contractors.  One  of  their  employees,  work- 
ing as  a  stevedore,  accidentally  suffered  an  injury  which  quick- 
ly caused  his  death  after  conscious  suffering.  A  suit  was  brought 


CASHMAN  v.  LONDON  GUARANTEE  CO.       519 

against  the  plaintiffs,  which  was  defended  by  this  defendant,  and 
a  judgment  was  recovered,  which  these  plaintiffs  were  obliged  to 
pay.  See  Garant  v.  Cashman,  183  Mass.  13,  66  N.  E.  599.  The 
evidence  in  that  case  is  a  part  of  the  agreed  statement  in  this, 
and  it  shows  that  there  was  a  liability  of  the  plaintiffs  for  an 
accidental  injury  to  one  of  their  employees  engaged  in  the  busi- 
ness of  a  stevedore.  On  its  face,  the  liability  seems  plainly  to 
come  within  the  terms  of  the  policy,  and  to- warrant  a  recovery 
in  this  action. 

The  ground  of  the  liability  of  these  plaintiffs  in  the  former 
suit  was  a  defect  in  their  ways,  works,  and  machinery  provided 
for  the  use  of  their  employees,  a  part  of  which  was  a  runway, 
\vith  an  apron  or  platform  attached  to  it  by  hinges,  which  when 
in  use  was  lowered  to  a  level  with  the  runway,  and  held  in  place 
over  the  vessel  that  was  being  loaded,  by  hinges  and  chains. 
Along  each  side  of  the  apron  were  posts  and  a  rope,  intended  for 
the  protection  of  the  persons  working  upon  it.  One  of  these 
posts  was  found  to  be  defective,  and  this  defect  was  the  cause 
of  the  injury  to  the  plaintiff  in  the  former  suit/f  The  present 
plaintiffs  had  entered  into  a  contract  with  the  coal  company 
that  owned  the  runway  to  keep  it  in  repair  so  long  as  they  con- 
ducted the  business  of  unloading  coal  at  that  place.  //Their  lia- 
bility for  the  accident  may  have  been  founded  on  this  contract, 
made  in  connection  with  their  business  as  stevedores;  and  the 
defense  in  this  suit  is  that  such  a  contract,  creating  such  a  lia- 
bility to  employees,  was  so  foreign  to  the  business  of  stevedores 
as  to  take  the  liability  out  of  the  provisions  of  the  policy  of 
insurance. 

In  the  first  place,  on  the  evidence,  it  may  be  doubtful  whether, 
as  matter  of  law,  this  runway  was  not  a  part  of  the  ways,  works, 
and  machinery  of  the  present  plaintiffs,  furnished  to  employees 
for  their  use  in  the  business,  such  as  to  create  a  liability  to  them 
for  its  condition  in  the  absence  of  such  a  contract  to  keep  it  in 
repair,  and  notwithstanding  the  ownership  of  the  coal  company. 
See  Coffee  v.  New  York,  New  Haven  &  Hartford  Railroad  Co., 
155  Mass.  21-23,  28  N.  E.  1128 ;  Trask  v.  Old  Colony  Railroad 
Co.,  156  Mass.  298-303,  31  N.  E.  6 ;  Hayes  v.  Philadelphia  Coal 
Co.,  150  Mass.  457,  23  N.  E.  225 ;  Spaulding  v.  Flynt  Granite 
Co.,  159  Mass.  587,  34  N.  E.  1134.  But  if  there  would  have  been 
no  liability  to  employees  without  the  contract  which  made  the 
present  plaintiffs  primarily  responsible  for  the  condition  of  the 


520  EMPLOYERS'  LIABILITY  BONDS. 

runway,  there  is  nothing  in  the  evidence  to  show  that  such  a 
contract  might  not  properly  be  made  in  connection  with  the 
plaintiffs'  business  as  stevedores.  It  seems  to  us  incidental  to 
the  business  in  which  they  were  engaged.  They  were,  and  had 
been  for  a  number  of  years,  under  a  contract  to  unload  the  coal 
coming  to  the  coal  company  at  this  wharf.  Certainly  it  cannot 
be  said,  as  matter  of  law,  that  such  a  contract  was  so  improper 
or  unreasonable  as  to  take  their  liability  to  their  employees,  on 
account  of  it,  out  of  the  general  provisions  of  the  policy.  To 
have  that  effect,  a  contract  must  be  such  as  to  make  the  liability 
not  the  liability  of  a  stevedore,  within  the  meaning  of  the  policy, 
but  a  separate  and  independent  liability. 

Judgment  affirmed. 


SOUTHERN  RY.  NEWS  CO.  v.  FIDELITY  &  CASUALTY 

CO.    1904. 

26  Ky.  Law  Rep.  1217;  83  8.  W.  Rep.  620. 

O'REAR,  J.  The  appellant,  the  Southern  Railway  News  Com- 
pany, is  a  corporation  engaged  in  the  sale  and  supplying  of 
books,  newspapers,  periodicals,  refreshments,  and  other  articles 
and  goods  on  railways,  stages,  steamboats,  and  other  conveyances 
in  the  United  States,  and  along  the  lines  or  ways  of  same.  The 
appellee,  the  Fidelity  &  Casualty  Company  of  New  York,  is  a 
corporation  engaged  in  the  issuing  of  policies  of  insurance,  in- 
suring employers  against  liability  for  injuries  to  persons  in 
their  employment. 

On  February  11,  1890,  appellee  issued  to  appellant  an  em- 
ployer's  liability   insurance   policy,    in   consideration   of  $150 
premium,  insuring  the  news  company  for  one  year  against  in- 
jitries  to  its  employees,  for  which  it  might  become  liable  in  dam-  • 
ages,  subject  to  the  limitation  that  its  liability  should  not  be 

^ 

more  than  $5,000  in  respect  to  an  accident  which  would  cause 
the  death  or  injury  of  any  one  person.  If  any  legal  proceed- 
ings should  be  taken  against  the  insured  to  enforce  a  claim  for 
indemnity  for  such  injuries,  the  insurer  engaged  at  its  own  cost 
arid  expense  to  have  the  absolute  conduct  and  control  of  de- 
fending the  same  throughout  in  the  name  and  on  behalf  of  the 


SOUTHERN  RY.  NEWS  CO.  v.   FIDELITY  CO.  521 

insured ;  but,  if  the  insurer  should  offer  to  pay  the  insured  the 
full  amount  insured,  then  it  should  not  be  bound  to  defend  the 
case,  nor  be  bound  for  any  costs  and  expenses  which  the  insured 
might  incur  in  defending  it.  It  is  also  agreed  that,  upon  the 
occurrence  of  an  accident  in  respect  of  which  a  claim  might 
arise,  notice  thereof  should  be  immediately  given  to  the  insurer 
at  its  office  in  New  York,  and  appellant  should  furnish  full  in- 
formation in  relation  to  it.  The  period  covered  by  the  policy, 
it  was  agreed,  was  fixed  on  the  assumption  that  the  amount  of 
the  estimated  yearly  pay  roll  to  the  employees  of  the  insured 
would  not  exceed  $30,000,  and  the  premium  paid  was  based  on 
that  amount.  "Therefore  as  soon  as  the  said  amount  of  wages 
shall  have  been  paid,  this  policy  shall  terminate  as  if  the  said 
period  had  expired,  unless  it  shall  have  been  continued  for  a 
further  period  by  the  payment  and  acceptance  of  a  further  pre- 
mium in  respect  thereof."  The  insurer's  officers  were  granted 
the  right  at  any  reasonable  hour  to  inspect  the  books  of  the  in- 
sured, so  far  as  they  related  to  the  wages  paid  to  its  employees. 
The  seventh  clause  of  the  agreement  reads  thus :  ' '  The  company 
shall  not  be  liable  to  a  suit  in  any  court  for  the  recovery  of  a 
claim  under  this  policy,  unless  the  same  is  commenced  within 
two  years  after  the  accident,  which  is  the  cause  of  action,  has 
occurred. ' ' 

On  December  28,  1889,  about  two  months  previous  to  the  date 
of  the  above-named  policy,  appellant  entered  into  a  written  eon- 
tract  with  the  Kansas  City,  Memphis  &  Birmingham  Railroad 
Company,  by  which  the  railroad  company,  in  consideration  of  a 
stipulated  sum,  granted  to  the  news  company  the  privilege  of 
selling  upon  its  regular  passenger  trains  during  the  year  begin- 
ning January,  1890,  periodicals,  newspapers,  books,  etc.,  under 
certain  conditions  and  regulations  therein  set  out,  including  the 
following:  "In  consideration  of  the  foregoing  grant  and  the 
privileges  therein  specified,  said  news  company  releases  said  rail- 
road company  from  any  right  of  action,  claim,  or  demand  which 
may  accrue  to  it  by  reason  of  the  loss  of  any  of  its  property 
while  being  transmitted  on  any  of  the  trains  of  the  railroad  com- 
pany under  the  terms  of  the  contract,  and  further  agrees,  for 
such  consideration,  to  indemnify  said  railroad  company  and 
save  it  harmless  from  all  claims,  demands,  damages,  actions,  costs, 
and  charges  to  which  the  railroad  company  may  be  subject,  or 
which  it  may  have  to  pay,  by  reason  of  any  injury  to  any  person 


522  EMPLOYERS'  LIABILITY  BONDS. 

or  property,  or  loss  of  life  or  property,  suffered  or  sustained 
by  any  agent  or  employee  of  the  news  company  while  in,  upon, 
or  about  any  of  the  stations,  platforms,  cars,  or  other  premises 
of  the  railroad  company,  whether  such  injuries  or  loss  arise  from 
the  negligence  of  the  employees  of  said  railroad  company,  or 
otherwise. ' ' 

Under  that  contract  the  railroad  company  carried  the  news 
company's  agents  upon  its  trains,  including  one  George  "W. 
Davis,  who  in  the  course  of  his  employment  as  news  agent  of 
appellant,  on  October  21,  1890,  at  the  company's  station  at  Bir- 
mingham, Ala.,  sustained  a  fatal  injury  from  one  of  its  trains, 
and  he  lingered  some  weeks  before  he  died.  Appellant  promptly 
notified  appellee  of  the  fact,  and  called  upon  it  to  take  such  steps 
as  it  deemed  proper  under  the  policy  to  protect 
itself.  The  administrator  sued  the  railroad  company  in 
a  court  of  Alabama  having  jurisdiction  of  the  matter, 
and  recovered  a  verdict  and  judgment  for  $5,000  and 
his  costs,  which  the  railroad  company  paid.  Neither 
appellee  nor  appellant  defended  that  suit.  The  railroad  company 
on  October  14,  1891,  demanded  payment  of  the  news  company 
of  the  $5,000  and  the  further  sum  of  $528.85,  which  the  railroad 
company  had  paid  for  hospital  expenses,  and  doctor's  services 
rendered  to  Davis.  The  news  company  failing  to  pay,  the  rail- 
road company  sued  it  in  the  circuit  court  of  Jackson  county,  in 
the  state  of  Missouri,  which  suit  resulted  in  a  judgment  in  favor 
of  the  railroad  company  for  $5,528.85.  The  news  company  con- 
tested its  liability  under  the  contract,  and  its  defense  was  dis- 
allowed. The  judgment  of  the  circuit  court  of  Jackson  county 
was  affirmed  on  appeal  to  the  Supreme  Court  of  Missouri  on 
June  14,  1899.  The  case,  which  is  reported  may  be  found  in 
52  S.  W.  205,  45  L.  R.  A.  380,  74  Am.  St.  Rep.  545. 

On  November  18,  1899,  appellant  filed  his  petition  in  equity 
in  the  Jefferson  circuit  court  of  this  state  against  appellee, 
in  which  petition  it  substantially  set  forth  and  pleaded  the  facts 
above  stated,  and  prayed  judgment  against  appellee  for  the  sum 
of  $7,609.57,  with  interest  from  July  27,  1899,  which 
was  the  aggregate  of  the  judgment  paid  to  the  rail- 
road company,  and  the  further  sum  of  $1,560.19,  with 
interest,  being  the  costs  incurred  by  the  news  company  in  defend- 
ing the  action.  The  defenses  interposed  to  this  action  were: 
First,  the  special  contract  of  limitation,  contained  in  the  seventh 


SOUTHERN  RY.   NEWS  CO.  v.   FIDELITY  CO.  523 

provision  of  the  policy,  and  above  quoted.  The  next  was  that 
the  amount  of  the  estimated  pay  roll,  namely  $30,000,  was  ex- 
ceeded prior  to  the  occurrence  set  forth  in  the  petition,  and  that 
before  any  payment  of  premium  was  made,  extending  or  renew- 
ing or  continuing  said  policy,  the  accident  and  occurrence  set 
forth  in  the  petition  occurred,  and  that  by  reason  of  these  facts 
the  policy  had  terminated  and  was  not  in  existence  at  the  time 
of  the  accident.  It  was  pleaded  by  the  reply  that  as  soon  as  said 
amount  of  wages,  $30,000,  should  have  been  paid,  the  policy 
would  terminate,  unless  it  was  continued  in  force  for  a  further 
period  by  the  payment  and  acceptance  of  a  further  premium; 
that  the  insurer  knew  that  appellant  compensated  its  employees 
by  paying  them  a  percentage  or  commission  on  the  amount  of 
their  sales,  which  commission  was  indefinite  and  uncertain,  and 
varied  from  time  to  time,  all  of  which  was  explained  to  the  in- 
surer at  the  tune  of  the  application ;  that  on  November  29,  1890, 
appellee  in  writing  notified  the  news  company  that  the  policy 
would  expire  on  February  11,  1891,  and  on  December  8,  1890, 
it  further  notified  appellant  that  its  pay  roll  or  commission  paid 
by  its  to  its  employees  from  the  date  of  the  policy  to  December  1, 
1890,  amounted  to  $45,370.63,  and  in  addition  to  the  premium 
of  $150  paid  February  11,  1890,  the  plaintiff  then,  on  December 
8,  1890,  paid  to  the  appellee  the  further  sum  of  $100  as  renewal 
premium,  which  was  accepted  in  full  satisfaction  of  such  renewal 
due  it  from  or  about  August  8,  1890.  A  demurrer  to  this  para- 
graph of  the  reply  was  sustained.  The  court  overruled  appel- 
lant's demurrer  to  the  plea  of  the  special  contract  of  limitation 
contained  in  the  seventh  paragraph  of  the  contract  sued  on. 
Appellant  declining  to  plead  further,  his  petition  was  dismissed, 
from  which  it  prosecutes  this  appeal. 

As  to  the  plea  of  limitation  it  was  not  good.  The  reasons  there- 
for will  be  found  in  the  opinion  this  day  delivered  hi  the  case 
of  Union  Central  Life  Ins.  Co.  v.  Harry  C.  Spinks,  _83^  S^W^JIS.. 
The  demurrer  should  have  been  sustained  to  that  part  of  the 
answer. 

We  are  also  of  the  opinion  that  the  demurrer  to  the  reply 
should  have  been  overruled.  The  pleadings  sufficiently  show, 
and  the  contract  shows,  that  the  insurance  was  for  a  term  of 
one  year,  that  the  rate  of  premium  was  based  upon  an  estimated 
pay  roll,  and  that  when  the  pay  roll,  which  was  indefinite  and 
uncertain,  should  exceed  the  estimate  upon  which  the  premium. 


524  EMPLOYERS'  LIABILITY  BONDS. 

was  based,  the  policy  would  terminate,  unless  an  additional  pre- 
mium was  paid.  Appellee,  with  full  knowledge  of  its  probable 
liability  to  the  insured  on  account  of  the  injury  to  its  agent, 
Davis,  accepted  a  premium  covering  the  insurance,  embracing 
the  date  of  Davis'  injury.  The  insurance  was  not  only  against 
loss,  but  it  was  against  liability,  and  loss  that  resulted  from  lia- 
bility. As  the  liability  attached  in  this  case  when  Davis  was 
injured,  although  it  was  not  consummated  until  it  was  fixed  by 
judgment  of  a  court  of  competent  jurisdiction  and  paid,  and 
although  the  loss  actually  occurred  after  the  expiration  of  the 
policy,  yet,  as  it  was  the  direct  and  natural  consequence  of  an 
injury  and  liability  incurred  during  the  term  of  the  policy,  ap- 
pellee was  liable  under  its  contract. 

Appellant  after  having  notified  appellee  that  the  liability  had 
been  incurred  by  reason  of  the  injury,  was  bound  to  make  the 
loss  as  small  as  possible,  so  far  as  it  reasonably  could,  although 
appellee  did  not  avail  itself  of  the  provision  in  the  policy  to 
personally  conduct  the  defense  to  the  suit.  Appellant  might 
have  compromised  the  claim,  so  that  it  acted  in  good  faith  and 
with  reasonable  prudence,  such  as  a  prudent  person  similarly 
situated  would  have  done  for  himself.  This  would  have  bound 
appellee  to  pay  to  it  the  loss  actually  sustained,  of  which  the 
compromise,  if  one  was  effected,  as  is  charged,  may  have  been 
taken  into  consideration  as  evidence  of  the  actual  loss  sustained, 
but,  of  course,  not  conclusive  evidence  of  it.  Other  evidence 
might  also  be  admitted  to  show  whether  it  was  or  was  not  a  ju- 
dicious and  fair  settlement. 

Where  the  policy  limits  the  amount  of  recovery  upon  the  death 
of  a  person,  the  costs  and  expenses  incurred  in  defending  suits 
the  insurer  should  have  defended  or  settled,  and  interest  thereon, 
are  recoverable  under  the  terms  of  this  policy.  Mandell  v.  Fi- 
delity &  Casualty  Co.,  170  Mass  173,  49  N.  E.  110,  64  Am.  St. 
Eep.  291;  Mercantile  Trust  Co.  v.  South  Park  Residence  Co. 
94  Ky.  271,  22  S.  W.  314.  The  suit  against  the  railroad  company 
by  Davis*  administrator  was  for  $20,000.  The  news  company 
was  bound  for  all  of  it  by  its  contract  with  the  railroad  com- 
pany. Unless  settled,  it  must  have  been  defended.  As  appellee 
failed  to  defend,  as  it  agreed  to  do  unless  it  paid  the  $5,000 
stipulated  in  its  policy,  it  was  incumbent  upon  appellant  to  de- 
fend. This  defense  was  primarily  for  the  benefit  of  appellee, 
though  incidentally  it  might  serve  also  as  a  protection  to  some 


ST.  LOUIS  ETC.  CO.  v.  MARYLAND  CO.  525 

extent  for  appellant  from  additional  liability  above  $5,000  to  the 
railroad  company.  The  hospital  expenses,  being  above  $5,000, 
and  not  included  in  the  expenses  of  defending  the  Alabama  suit, 
are  not  part  of  appellee 's  liability.  Nor  are  appellant 's  expenses 
and  costs  in  defending  in  the  Missouri  courts  its  own  liability  on 
its  contract  with  the  railroad  company. 

For  the  reasons  indicated,  the  judgment  is  reversed,  and  cause 
remanded  for  further  proceedings  not  inconsistent  herewith. 


ST.  LOUIS  DRESSED  BEEF  &  P.  CO.  v.  MARYLAND  CAS- 
UALTY  CO.     1906. 

201  V.  S.  173;  26  Sup.  Ct.  Eep.  400. 

Statement  by  Mr.  Justice  HOLMES: 
This  case  was  brought  here  on  the  following  certificate : 
"The  judgment  which  the  writ  of  error  challenges  sustained  a 
demurrer  to  the  petition  and  dismissed  the  action.  The  plaintiff 
in  its  petition  alleged  the  existence  of  these  facts :  The  plaintiff 
is  a  corporation  of  the  state  of  Missouri,  and  the  defendant  is  a 
corporation  of  the  state  of  Maryland.  On  June  16,  1900,  the  de- 
fendant, in  consideration  of  the  payment  of  $168,  issued  to  the 
plaintiff  a  policy  which  contained  these  provisions:  'In  consid- 
eration of  the  application  for  this  policy,  a  copy  of  which  is  here- 
to attached  and  which  is  made  part  of  this  contract,  and  of  one 
hundred  and  sixty-eight  dollars  ($168)  premium,  Maryland  Cas- 
ualty Company,  of  Baltimore,  Maryland  (hereinafter  called  "the 
company"),  does  hereby  agree  to  indemnify  St.  Louis  Dressed 

Beef  &  Provision  Company  of  St.  Louis,  county  of ,  state 

of  Missouri,  hereinafter  called  "the  assured,"  for  the  term  of 
one  year,  beginning  on  the  5th  day  of  July,  1900,  at  noon,  and 
ending  on  the  5th  day  of  July,  1901,  at  noon,  standard  time,  at 
the  place  where  this  policy  has  been  countersigned,  against  loss_ 
from  common-law  or  statutory  liability  for  damages  on  account 
of  bodily  injuries,  fatal  or  non-fatal,  accidentally  suffered  by 
any  person  or  persons,  and  caused  through  the  negligence  of  the 
nssuivd.  by  means  of  the  horses  or  vehicles  in  his  services,  and 
the  use  thereof,  as  described  in  the  application,  and  while  in  the 
charge  of  the  assured  or  his  employees.  Provided,  however,  that : 


526  EMPLOYERS'   LIABILITY  BONDS. 

"  'A.  The  company's  liability  for  an  accident  resulting  in  in- 
juries to,  or  in  the  death  of,  one  person,  is  limited  to  five  thousand 
dollars  ($5,000)  and  subject  to  the  same  limit  for  each  person; 
the  total  liability  for  any  one  accident  resulting  in  injuries  to,  or 
in  the  death  of,  any  number  of  persons  is  limited  to  ten  thousand 
dollars  ($10,000). 

"  'This  insurance  is  subject  to  the  following  conditions,  which 
are  to  be  construed  as  conditions  precedent  of  this  contract : 

"  '1.  The  assured,  upon  the  occurrence  of  an  accident,  shall 
give  immediate  notice  thereof  in  writing,  with  full  particulars,  to 
the  home  office  of  any  claim  which  may  be  made  on  account  of 
such  accident. 

"  '2.  If  thereafter  any  suit  is  brought  against  the  assured  to 
enforce  a  claim  for  damages  on  account  of  an  accident  covered  by 
this  policy,  immediate  notice  thereof  shall  be  given  to  the  com- 
pany, and  the  company  will  defend  against  such  proceeding,  in 
the  name  and  on  behalf  of  the  assured,  or  settle  the  same  at  its 
own  cost,  unless  it  shall  elect  to  pay  the  assured  the  indemnity 
provided  for  in  clause  "A"  of  special  agreements,  as  limited 
therein. 

' '  '  3.  The  assured  shall  not  settle  any  claim,  except  at  his  own 
cost,  nor  incur  any  expense,  nor  interfere  in  any  negotiation  for 
settlement  or  in  any  legal  proceeding,  without  the  consent  of 
the  company,  previously  given  in  writing,  but  he  may  provide 
at  the  time  of  the  accident  such  immediate  surgical  relief  as  is 
imperative.  The  assured,  when  requested  by  the  company,  shall 
aid  in  securing  information  and  evidence,  and  in  effecting  settle- 
ments, and  in  case  the  company  calls  for  the  attendance  of  any 
employee  or  employees  as  witnesses  at  inquests  and  in  suits,  the 
assured  will  secure  his  or  their  attendance,  making  no  charge  for 
their  loss  of  time. ' 

"  '8.  No  action  shall  lie  against  the  company  as  respects  any 
loss  under  this  policy  unless  it  shall  be  brought  by  the  assured 
himself  to  reimburse  him  for  loss  actually  sustained  and  paid  by 
him  in  satisfaction  of  a  judgment  after  trial  of  the  issue.  No 
such  action  shall  lie  unless  brought  within  the  period  within 
which  a  claimant  might  sue  the  assured  for  damages  unless,  at 
the  expiry  of  such  period,  there  is  such  an  action  pending  against 
the  assured,  in  which  case  an  action  may  be  brought  against  the 
company  by  the  assured  within  thirty  days  after  final  judgment 
has  been  rendered  and  satisfied  as  above.  In  no  case  except  that 


ST.  LOUIS  ETC.  CO.  v.  MARYLAND  CO.  527 

of  minors  shall  any  action  lie  against  the  company  after  the  ex- 
piration of  six  years  from  the  date  of  the  given  injuries  or  death. 
The  company  does  not  prejudice  by  this  clause  any  defenses  to 
such  action  which  it  may  be  entitled  to  make  under  this  policy. 

' '  '  This  policy  shall  only  cover  losses  sustained  by  and  liability 
for  any  claims  against  the  assured  as  a  result  of  the  risk  specified 
in  the  contract  or  contracts  hereto  attached,  and  is  issued  and 
accepted  upon  the  condition  that  all  the  provisions  printed  on 
the  slip  or  slips  attached  to  this  policy  are  accepted  and  shall 
be  fulfilled  by  the  assured  as  part  of  this  contract  as  fully  as 
if  they  were  recited  at  length  over  the  signatures  hereto  affixed.' 

"The  portion  of  the  policy  hereinbefore  quoted,  commencing 
with  the  words  '  against  loss  from  common-law  or  statutory  liabil- 
ity' and  ending  with  the  words  'entitled  to  make  under  this  pol- 
icy,' at  the  close  of  paragraph  numbered  8,  were  printed  on  the 
slip  attached  to  the  policy 

' '  On  May  25,  1901,  the  plaintiff  became  liable  for  damages  on 
account  of  bodily  injuries  accidentally  suffered  by  Mrs.  Nellie 
Heideman,  and  caused  through  the  negligence  of  the  plaintiff  by 
means  of  a  horse  and  vehicle  in  its  service  and  the  use  thereof,  as 
described  in  the  application  for  the  policy,  and  while  in  charge 
of  one  John  Berry,  who  was  one  of  the  plaintiff's  employees. 
The  plaintiff  immediately  gave  the  defendant  notice  of  the  acci- 
dent and  of  the  fact  that  Nellie  Heideman  made  a  claim  against 
the  plaintiff  for  damages  on  account  of  the  bodily  injuries  she 
had  suffered  from  the  accident,  and  that  Henry  Heideman,  her 
husband,  also  made  a  claim  for  damages  against  it  on  account 
of  the  loss  of  the  services  of  his  wife  and  of  the  expenses  of  physi- 
cians and  nurses  which  resulted  to  him  from  her  bodily  injuries. 
On  August  16,  1901,  the  defendant  notified  the  plaintiff  that  it 
denied  that  it  was  liable  to  it  on  account  of  the  damages  resulting 
from  the  accident  under  the  policy  because,  as  it  alleged,  the 
driver  of  the  plaintiff's  wagon  was  not  an  employee  of  the  plain- 
tiff, but  the  fact  was  that  this  driver  was  an  employee  of  the 
plaintiff,  and  the  accident  and  the  damages  were  covered  by  the 
policy.  On  November  23,  19*01,  Nellie  Heideman  sued  the  plain- 
tiff for  $10,000  damages  on  account  of  the  bodily  injuries  to  her 
caused  by  the  negligence  of  the  plaintiff's  driver  and  by  the  acci- 
dent, and  Henry  Heideman  brought  an  action  against  it  for 
$3,000  damages,  which  he  alleged  he  sustained  from  the  same 
cause.  On  November  29,  1901,  the  plaintiff  in  writing  notified 


528  EMPLOYERS'   LIABILITY  BONDS. 

the  defendant  of  the  commencement  of  these  suits,  and  requested 
it  to  undertake  the  defense  of  said  suits  as  its  said  policy  provides 
it  would  do.  But  the  'defendant  declined  to  undertake  the  de- 
fense, upon  the  alleged  ground  that  its  policy  did  not  cover  the 
accident  or  the  claims,  while  the  fact  was  that  it  covered  both. 
The  injuries  to  Mrs.  Heideman  were,  among  others,  the  breaking 
of  her  right  hip-joint  socket  bone,  were  serious  and  permanent, 
and  the  plaintiff  was  liable  for  damages  in  each  of  the  suits. 
It  feared  heavy  judgments  if  the  actions  were  permitted  to  pro- 
ceed to  trial.  Thereupon,  on  April  15,  1902,  it  compromised 
the  suits,  and  paid  Mrs.  Heideman  $2,000  damages  and  her  hus- 
band $500  damages  on  account  of  the  injuries  caused  by  the 
accident  and  the  negligence  of  its  driver. 

"The  petition  also  contained  the  following  averments:  'The 
plaintiff  served  on  defendant  a  written  notice,  notifying  it  of  the> 
terms  of  settlement  offered  by  said  Nellie  Heideman  and  Henry 
Heideman  for  the  injuries  sustained  and  damages  suffered  by 
them  respectively,  as  aforesaid,  and  that  plaintiff  proposed  to  ac- 
cept said  settlements  and  pay  said  amounts,  and  to  hold  defend- 
ant responsible  for  such  payment  under  its  aforesaid  policy ;  that 
defendant  interposed  no  objection  to  said  proposed  settlements, 
relying  upon  its  said  disclaimer  of  any  liability  under  said  policy 
by  reason  of  its  alleged  claim  that  the  driver  of  said  wagon  was 
not  in  the  employ  of  the  plaintiff  herein ;  and  that  said  defendant, 
by  reason  of  the  said  denial  and  disclaimer  of  any  liability, 
waived  all  the  conditions  of  the  said  policy  as  herein  set  forth. 
Plaintiff  further  states  that  by  reason  of  defendant's  failure  and 
refusal  to  defend  said  actions  brought  by  Nellie  Heideman  and 
Henry  Heideman  against  plaintiff,  and  by  reason  of  the  waiver 
aforesaid,  it  was  obliged  to  and  did  defend  said  actions  and  em- 
ployed counsel  for  that  purpose,  at  an  expense  of  two  hundred 
and  fifty  dollars  ($250.00),  and  that  said  employment  of  counsel 
was  reasonably  necessary,  and  that  said  sum  of  $250.00  is  the 
reasonable  value  of  said  services  so  performed.' 

"And  the  circuit  court  of  appeals  for  the  eighth  circuit  furth- 
er certifies  that  the  following  questions  of  law  are  presented  by 
the  assignment  of  errors  in  this  case,  that  their  decision  is  indis- 
pensable to  a  decision  of  this  case,  and  that  to  the  end  that  this 
court  may  properly  decide  the  issues  of  law  presented  it  desires 
the  instruction  of  the  Supreme  Court  of  the  United  States  upon 
the  following  questions : 


ST.  LOUIS  ETC.  CO.  v.  MARYLAND  CO.  529 

' '  1.  Did  the  denial  of  all  liability  by  the  assurer  and  its  refusal 
to  defend  the  suits  in  the  name  and  on  behalf  of  the  assured,  as 
provided  by  paragraph  2  of  the  policy,  constitute  such  a  breach 
of  the  contract  on  its  part  that  it  released  the  assured  from  its 
agreement  in  paragraph  3,  that  it  would  not  settle  any  claim  ex- 
cept at  its  own  cost  wtihout  the  consent  of  the  assurer,  previously 
given  in  writing,  and  from  the  provision  of  paragraph  8,  that  no 
action  should  lie  against  the  assurer  as  respects  any  loss  unless 
for  loss  actually  sustained  and  paid  by  the  assured  in  satisfaction, 
of  a  judgment  after  trial  of  the  issue  ? 

"2.  Were  the  provisions  of  paragraphs  3  and  8  of  the  policy, 
that  the  assured  should  not  settle  any  claim  except  at  its  own  cost, 
without  the  consent  of  the  assurer,  previously  given  in  writing, 
and  that  no  action  should  lie  against  the  assurer  as  respects  any 
loss  under  the  policy  unless  brought  by  the  assured  to  reimburse 
it  for  loss  actually  sustained  and  paid  by  it  in  satisfaction  of  a 
judgment  after  trial  of  the  issue,  waived  by  the  assurer's  denial 
of  liability  under  the  policy,  and  by  its  failure  and  refusal  to  de- 
fend the  suit  against  the  assured,  according  to  the  provision  in 
paragraph  2? 

' '  3.  Did  the  compromise  by  the  assured  of  the  suits  against  it 
after  the  assurer  denied  liability  and  refused  to  defend  them,  and 
the  payment  by  the  assured  of  the  damages  claimed  of  it  pursuant 
to  the  compromise,  without  the  consent  of  the  assurer  and  without 
the  rendition  of  a  judgment  or  a  trial  of  the  issues,  prevent  the 
assured  from  securing  any  recovery  of  the  assurer  upon  the  pol- 
icy on  account  of  the  negligence,  accident,  and  injuries  described  ? 

"4.  Considering  the  terms  of  the  policy,  is  the  right  of  the 
assured  to  insist  upon  the  condition  of  paragraph  8  respecting  the 
rendition  of  judgment  after  trial  and  its  satisfaction  by  the  as- 
sured dependent  upon  the  assurer's  defense  of  the  action  against 
the  assured,  according  to  the  provision  in  paragraph  2  ? 

' '  5.  Considering  the  terms  of  the  policy,  is  the  assurer 's  denial 
of  liability  under  the  policy  a  waiver  of  the  condition  in.  para- 
graph 8  respecting  the  rendition  of  judgment  after  trial  and  its 
satisfaction  by  the  assured? 

' '  6.  Under  the  terms  of  the  policy,  may  the  liability  of  the  as- 
sured to  the  injured  person  and  the  extent  of  that  liability  be  liti- 
gated in  the  first  instance  in  an  action  between  the  assured  and 
the  assurer,  where  the  assurer  has  denied  its  liability  under  the 
M 


530  EMPLOYERS'   LIABILITY  BONDS. 

policy,  and  has  refused  to  defend  an  action  brought  against  the 
assured  by  the  injured  person?" 

Mr.  Justice  HOLMES  delivered  the  opinion  of  the  court : 

An  elementary  remark  or  two  will  do  something  toward  answer- 
ing these  questions.  The  form  of  the  declaration  does  not  appear, 
but  we  may  suppose  a  count  upon  the  casualty  company's  refusal 
to  defend  the  suit  against  the  plaintiff.  If  the  defendant's  con- 
tention is  right,  that  breach  made  it  impossible  for  the  plaintiff 
to  entitle  itself  to  the  payment  promised  in  the  policy  according 
to  its  terms.  But  the  defendant  could  not  set  itself  free  by  so 
simple  a  device.  In  general,  when  one  party,  by  his  fault,  pre- 
vents the  other  party  to  a  contract  from  entitling  himself  to  a 
benefit  under  it  according  to  its  terms,  the  former  is  liable  for  the 
value  of  that  benefit,  less  the  value  or  cost  of  .what  the  plaintiff 
would  have  had  to  do  to  get  it.  In  this  case  the  plaintiff  had 
nothing  more  to  do  or  to  pay  after  it  had  been  compelled  to  sat- 
isfy the  claim  against  it.  And  therefore  on  general  principles,  it 
would  be  entitled  to  demand  the  whole  amount  which  the  jury 
might  find  that  it  would  have  received  had  the  contract  been 
performed.  Hinckley  v.  Pittsburgh  Bessemer  Steel  Co.,  121  U. 
S.  264,  30  L.  ed.  967,  7  Sup.  Ct.  Rep.  875. 

It  is  suggested,  to  be  sure,  that  the  plaintiff  should  have  de- 
fended the  suit  against  it.  But  not  only  was  that  not  one  of  the 
plaintiff's  undertakings,  but  it  was  expressly  forbidden  to  the 
plaintiff  by  the  contract,  as  no  doubt  the  defendant  would  have 
pointed  out  had  that  course  been  taken.  Moreover,  the  defend- 
ant, by  its  refusal,  cut  at  the  very  root  of  the  mutual  obligation, 
and  put  an  end  to  its  right  to  demand  further  compliance  with 
the  supposed  term  of  the  contract  on  the  other  side.  The  only 
concern  of  the  plaintiff  was  to  establish  reasonable  ground  for 
believing  that  if  the  defendant  had  not  broken  its  contract  it 
would  have  been  called  on  to  make  a  payment  to  the  plaintiff, 
and  how  much  that  payment  would  have  been. 

Looking  at  the  substance  of  the  matter,  it  makes  no  practical 
difference,  no  difference  in  the  amount  of  the  defendant's  liabil- 
ity, whether  we  say  that  the  defendant,  by  its  conduct,  made  per- 
formance of  the  conditions  by  the  plaintiff  impossible,  and  there- 
fore was  chargeable  for  the  sum  which  it  would  have  had  to  pay 
if  those  conditions  had  been  performed,  or  answer,  in  the  lan- 
guage of  the  questions,  that  performance  of  the  conditions  was 
waived.  The  sole  difference  would  be  in  the  form  of  the  declara- 


ST.  LOUIS  ETC.  CO.  v.  MARYLAND  CO.  531 

tion.  In  either  case  the  plaintiff  would  declare  upon  the  policy, 
only  the  breaches  assigned  would  not  be  the  same.  In  the  for- 
mer, the  breach  would  be  the  refusal  to  defend ;  in  the  latter,  the 

refusal  to  pay.    If  it  is  necessary  to  consider  the  question  jnji ( 

technical  aspect,  we  think  that  the  plaintiff  was  entitled  to  treat 
the  contract  as  on  foot,  notwithstanding  the  defendant 's  act,  and 
go  on  with  it  cy-pres.  Under  the  circumstances  it  could  not  com- 

U>ly  literally  with  the  words,  and  was  justified  in  doing  the  best 
hing  that  could  be  done  for  the  interest  of  both.  The 
ant,  by  its  abdication,  put  the  plaintiff  in  its  place,  with  all  its 
rights.  To  limit  its  liability  as  if  its  only  promise  was  to  pay  a 
loss  paid  upon  a  judgment  is  to  neglect  the  meaning  and  purpose 
of  the  reference  to  a  judgment,  and  even  the  words  of  the  prom- 
ise. The  promise  in  form  is  to  indemnify  against  loss  by  certain 
kinds  of  liability.  The  judgment  contemplated  in  the  condition 
is  a  judgment  in  a  suit  defended  by  the  defendant  in  case  it 
elects  not  to  settle.  The  substance  of  the  promise  is  to  pay  a  loss 
which  the  plaintiff  shall  have  been  compelled  to  pay,  after  such 
precautions  and  with  such  safeguards  as  the  defendant  may 
insist  upon.  It  saw  fit  to  insist  upon  none. 

We  assume  that  the  settlement  was  reasonable,  and  that  the 
plaintiff  could  not  expect  to  escape  at  less  cost  by  defending 
the  suits.  If  this  were  otherwise,  no  doubt  the  defendant  would 
profit  by  the  fact.  The  defendant  did  not  agree  to  repay  a 
gratuity,  or  more  than  fairly  could  be  said  to  have  been  paid 
upon  compulsion.  But  a  sum  paid  in  the  prudent  settlement  of 
a  suit  is  paid  under  the  compulsion  of  the  suit  as  truly  as  if  it 
were  paid  upon  execution. 

But  there  is  another  aspect  of  the  eighth  condition  of  the  slip 
which  requires  a  few  words  more.  It  is  said  that  this  condition 
expressly  contemplates  a  breach  of  contract  by  the  company,  and 
defines  the  plaintiff's  rights  in  that  case.  The  words  "no  action 
shall  lie  against  the  company  as  respects  any  loss  under  this 
policy  unless,"  etc.,  certainly  do  contemplate  a  case  in  court  in 
which  the  company  may  turn  out  to  be  in  the  wrong,  and  there- 
fore technically  guilty  of  a  breach  of  contract.  But  notwith- 
standing the  contrary  suggestion  in  Sanders  v.  Frankfort  Marine, 
Acci.  &  Plate  Glass  Ins.  Co.  72  N.  H.  485,  498,  499,  101  Am.  St. 
Rep.  688,  57  Atl.  655,  we  think  that  the  only  breach  which  that 
condition  has  in  view  is  a  refusal  by  the  company  to  pay  after 
the  decision  in  a  case  of  which  it  has  taken  charge,  when,  not- 


532  EMPLOYERS'  LIABILITY  BONDS. 

withstanding  the  judgment,  it  conceives  itself  to  have  a  defense. 
The  action  referred  to  is  an  action  for  money  alleged  to  be 
due  under  the  policy.  Contracts  rarely  provide  in  detail  for 
their  nonperformance.  It  would  be  stretching  the  words  quoted 
to  a  significance  equally  hurtful  to  both  parties,  and  probably 
equally  absent  from  the  minds  of  both,  to  read  them  as  having 
within  their  scope  an  initial  repudiation  of  liability  by  the  de- 
fendant, and  a  requirement  that,  in  that  event,  the  plaintiff 
should  be  bound  to  try  the  case  against  itself,  although  it  should 
be  plain  that  by  a  compromise  it  could  reduce  its  claim  on  the 
defendant  as  well  as  its  own  loss. 

If  there  is  anything  in  the  doubt  whether  the  defendant,  by 
assuming  the  defense  of  the  original  suit,  would  not  lose  its 
right  to  deny  that  the  policy  applied,  even  if  it  purported  to 
save  that  right,  it  does  not  change  our  opinion.  The  require- 
ment of  a  trial  and  judgment  would  not  accomplish  the  object 
suggested,  to  make  collusion  impossible.  The  objections  to  thus 
hampering  the  dominus  litis  have  been  touched  upon,  and  there 
would  be  presented  the  anomaly,  if  not  the  monstrosity,  of  a 
party  attempting  to  provide  by  contract  that  if  he  should  do 
what,  by  general  principles  of  contract,  forfeited  his  right  to 
make  further  requirements  of  the  other  side,  his  conduct,  on  the 
contrary,  should  impose  new  obligations  on  the  other  side.  If  the 
defendant  kept  its  contract,  it  would  defend  the  suit,  and  the 
plaintiff  would  have  no  duties.  If  it  refused  to  do  as  it  had 
promised,  we  cannot  think  that  it  was  entitled  to  complain  that 
the  plaintiff  did  not  do  it,  when  the  interest  of  both  was  the 
other  way.  Before  a  policy  should  be  construed  to  have  such  an 
extraordinary  effect  honesty  requires  that  the  assured  should 
be  notified  of  his  duties  in  unmistakable  words. 

We  answer  the  first,  second,  fourth,  and  fifth  questions  in 
the  affirmative,  the  third  in  the  negative,  and  the  sixth  in  the 
affirmative,  so  far  as  the  question  is  warranted  by  the  facts  set 
forth.  It  will  be  so  certified. 


SHAKMAN   v.   U.   S.   CREDIT  CO.  533 


CHAPTER  XXI. 

CREDIT  INDEMNITY  BONDS. 

a.  Credit  Indemnity  Bonds  are  in  the  nature  of  insurance  pol- 
icies indemnifying  against  losses  arising  from  commercial 
credits. 

SHAKMAN  v.   UNITED   STATES  CREDIT   SYSTEM  CO. 

1896. 

92  Wis.  366;  66  N.  W.  Rep.  528;  53  Am.  St.  Rep.  920;  32  L.  R. 

A.  383. 

This  action  was  based  on  a  written  "certificate  of  guaranty"; 

"No.  3452.  Incorporated  1888.  $5,000. 

"United  States  Credit  System  Company,  of  the  City  of  Newark, 

N.  J. 

"For  and  in  consideration  of  the  terms  and  conditions  herein 
named,  and  of  the  sum  of  one  hundred  and  forty-five  dollars, 
paid  by  L.  A.  Shakman  &  Co.,  hereby  grants,  bargains,  and  sells 
to  the  said  L.  A.  Shakman  &  Co.  this  certificate,  issued  under 
its  copyrighted  system  of  credits,  in  series  A,  class  B,  for  the 
term  of  one  year,  commencing  on  the  1st  day  of  July,  1889,  and 
ending  on  the  1st  day  of  July,  1890.  And  for  said  considera- 
tion the  said  United  States  Credit  System  Company  guaranties, 
covenants,  and  agrees  that  if  the  said  L.  A.  Shakman  &  Co. 
should,  by  reason  of  the  insolvency  of  any  debtor  or  debtors, 
who  owe  such  debtor  debts  for  merchandise  sold  and  delivered 
during  said  period,  under  the  credit  system  of  said  company 
as  hereinbefore  mentioned,  or  by  reason  of  any  uncollectible 
judgment  or  judgments  that  he  or  they  may  have  obtained,  for 
the  sum  or  sums  of  money  due  for  merchandise  sold  and  deliv- 
ered as  aforesaid,  have  losses  in  excess  of  1%  per  cent,  on  their 
total  sales  made  during  the  above  limited  period,  to  pay  such 
excess  loss,  not  exceeding  five  thousand  dollars,  less  the  deduc- 
tions, and  subject  to  the  terms  and  conditions  hereinafter  named. 
It  is,  however,  expressly  agreed  and  understood  that  this  cer- 
tificate forms  a  part  of  series  A,  and  the  company's  liability 
to  pay  excess  losses  in  any  series  is  limited  to  the  fund  or  funds 
provided  for  said  series,  as  appears  more  specifically  in  the  ap- 
plication signed  by  said  L.  A.  Shakman  &  Co.,  which  application 
forms  a  part  of  this  certificate. 

"Terms  and  Conditions. 

"  (1)  That  no  credit  which  may  have  been  given  to  any  party 
or  parties  shall  be  included  in  the  calculation  of  losses,  unless  he 


534  CREDIT   INDEMNITY  BONDS. 

or  they  were  rated  in  R.  G.  Dun  &  Co. 's  Mercantile  Agency  in 
the  latest  books  or  reports  issued  by  it  at  the  time  of  shipping  the 
goods,  and  that  no  special  or  other  report  was  received  by  said 
L.  A.  Shakman  &  Co.  changing  the  same.  And  in  case  any 
change  has  occurred,  such  sale  and  shipment  shall  be  considered 
to  have  been  made  in  accordance  with  such  change.  (2)  That, 
in  calculating  the  losses,  no  credit  that  may  have  been  given 
shall  be  included  therein  exceeding  credit  of  30  per  cent,  on 
the  lowest  capital  rating  such  party  or  parties  were  rated  in 
said  Mercantile  Agency's  books  or  reports.  (3)  That,  in  the 
calculation  of  losses,  no  account  against  any  debtor  shall  be  in- 
cluded therein  for  more  than  ten  thousand  dollars.  (4)  That 
no  credit  that  may  have  been  given  shall  be  included  in  the  cal- 
culation of  losses,  unless  the  rating  of  the  party  to  whom  such 
credit  is  given  was  at  least  two  thousand  dollars  ($2,000)  at  the 
time  of  shipping  the  goods,  and  that  the  credit  rating  was  the 
best  or  next  to  the  best  for  the  capital.  (5)  All  losses  shall 
remain  the  property  of  said  L.  A.  Shakman  &  Co.,  and  in  con- 
sideration thereof  it  is  agreed  that  I2y2  per  cent,  of  the  said 
1%  per  cent,  of  the  yearly  sales,  and  121/2  per  cent,  of  the  losses 
incurred  in  excess  thereof,  not  exceeding  the  amount  of  this 
guaranty,  shall  be  deducted  from  both  said  sums,  and  the  bal- 
ance, after  the  deduction  of  the  amount  of  said  1%  per  cent,  on 
the  said  yearly  sales,  shall  be  the  sum  for  which  said  company 
is  liable.  (6)  That  it  shall  be  the  duty  of  the  said  L.  A.  Shak- 
man &  Co.  to  notify  said  company  of  the  insolvency  of  any  of 
his  or  their  debtors  coming  within  the  calculation  of  losses  under 
this  certificate,  within  ten  days  after  receiving  information  of 
the  same.  Such  notice  shall  state  the  name  of  the  debtor,  the 
place  of  business,  date  of  shipment,  amount  thereof  and  amount 
still  due.  Upon  failure  to  give  such  notice,  such  claim  shall 
not  be  taken  into  the  calculation  of  losses.  (7)  That,  in  pre- 
senting proofs  of  losses  to  said  company,  such  proofs  shall  spe- 
cifically show  the  facts  upon  which  the  guarantor  bases  the  be- 
lief that  the  claims  are  a  loss,  a  statement  of  the  amount  of  the 
gross  sales  between  and  including  date  of  beginning  and  ex- 
piration of  this  certificate,  the  names  of  the  person  or  persons 
to  whom  the  goods  were  sold,  itemized  account  of  the  same,  date 
of  shipment,  amounts  paid  on  account,  the  discounts  the  debtor 
or  debtors  were  entitled  to  receive ;  and  said  proofs  of  loss  must 
be  duly  verified.  (8)  That  all  proofs  of  loss  must  be  pre- 
sented within  six  months  after  the  expiration  of  the  term  men- 
tioned and  set  forth  in  this  certificate,  or  else  the  said  claims  shall 
be  forever  barred,  even  though  the  loss  occurs  on  an  account 
falling  due  after  the  expiration  of  said  six  months;  provided, 
however,  where  any  claim  is  in  litigation,  and  notice  thereof  is 
given  to  the  company,  then,  in  that  case,  the  loss,  if  any,  shall 
be  presented  within  ten  days  after  the  termination  of  said  liti- 


SHAKMAN  v.   U.    S.   CREDIT   CO.  535 

gaticn.  (9)  It  is  expressly  understood  that  this  certificate  is 
issued  under  class  B  of  this  company,  whereby  the  amount  of  the 
yearly  sales  of  said  L.  A.  Shakman  &  Co.  are  fixed  between  the 
sum  of  one  hundred  thousand  dollars  and  two  hundred  thou- 
sand dollars;  but,  should  such  sales  be  of  a  greater  or  less  sum 
than  above  fixed,  then  any  loss  sustained  by  the  said  L.  A.  Shak- 
man &  Co.  would  be  settled  by  this  company  under  the  terms  and 
conditions  of  the  class  to  which  it  belongs,  according  to  the  classi- 
fication system  of  this  company.  (10)  That  this  company  shall 
only  be  liable  to  the  said  L.  A.  Shakman  &  Co.  for  goods,  wares, 
and  merchandise  by  him  or  them  owned,  shipped,  and  sold  in 
the  usual  course  of  his  or  their  business  and  trade,  and  not  for 
goods  kept  by  him  or  them  on  consignment,  and  for  which  he 
or  they  have  incurred  no  liability  to  pay  for;  nor  shall  said 
company  be  liable  for  claims  arising  from  other  sources.  (11) 
The  company  shall  pay  all  losses  within  sixty  days  after  the 
proof  of  loss  shall  have  been  made.  (12)  There  shall  be  no 
liability  on  the  part  of  the  company  unless  the  said  L.  A.  Shak- 
man &  Co.  shall  have  continued  his  or  their  said  business  for  the 
full  period  of  the  term  herein  mentioned  and  set  forth,  and 
should  he  or  they  not  so  continue,  fifty  (50)  per  cent,  of  the 
guaranty  fee  received  shall  be  returned  in  full  satisfaction  of 
all  claims  against  this  company. 

"Special:  In  condition  No.  2,  20  per  cent,  is  changed  to  30 
per  cent.  Condition  No.  4  is  changed  so  as  to  include  sales  to 
parties  whose  rating  is  K  3^  in  Dun's  Agency  Book." 

At  the  time  of  the  delivery  of  this  certificate,  and  before  pay- 
ment of  the  consideration  or  premium,  Shakman  objected  that 
the  policy  did  not  allow  the  use  of  Bradstreet  's  reports  of  ratings 
as  well  as  Dun's.  There  is  a  conflict  in  the  evidence  as  to  what 

gw^^pflfgHMiMlM* 

followed  this  objection.  Shakman 's  evidence  tends  to  prove  that 
Langsdorf  said  he  would  concede  this,  and  that  he  had  authority 
to  do  so,  and  that  Lansdorf  thereupon  wrote,  and  delivered  with 
the  policy,  the  following  slip:  "Milwaukee,  Nov.  8,  1889.  In- 
jdorsement  to  certificate  No.  3,452,  in  favor  of  L.  A.  Shakman 
&  Co.,  to  wit:  Should  any  party  to  whom  above-named  firm 
may  sell  goods  not  be  rated  within  the  system  of  this  company  at 
Dun's  Mercantile  Agency,  and  Bradstreet 's  Agency  does  rate 
such  party,  within  the  system  of  this  company,  then,  in  such 
cases,  the  latter  shall  be  binding  upon  this  company.  A.  Langs- 
dorf, Genl.  Supt."  Langsdorf,  on  the  other  hand,  while  admit- 
ting that  Shakman  objected  to  the  policy  because  it  did  not  al- 
low the  use  of  Bradstreet 's  ratings  as  well  as  Dun's,  denies 
that  he  gave  the  indorsement  to  Shakman  as  a  contract,  but 


536  CREDIT  INDEMNITY  BONDS. 

says  that  lie  told  him  he  would  submit  the  matter  to  the  company 
for  their  decision,  and  that  he  wrote  out  the  indorsement  simply 
to  show  Shakman  how  it  would  read  in  case  the  company  ap- 
proved it.  At  the  same  time,  and  after  the  delivery  of  the 
slip,  Shakman  paid  to  Langsdorf  the  premium  of  $155.  It  ap- 
peared that  one  Fishell  was  the  partner  of  Langsdorf,  and  that 
their  office  was  at  Chicago,  and  that  they  styled  it  the  "West- 
ern Department"  of  the  United  States  Credit  Company;  Langs- 
dorf calling  himself  general  superintendent,  and  Fishell  general 
manager.  Langsdorf  testifies  that  they  assumed  these  titles  with- 
out authority  of  the  company,  and  really  only  had  authority  to 
solicit  business  and  collect  premiums.  On  or  about  November 
26,  1889,  the  plaintiff  received  a  letter  from  Fishell  as  follows: 
"  Inclosed  find  indorsement  slip,  as  requested,  which  please  at- 
tach to  the  certificate,  to  take  the  place  of  the  agreement  left  with 
you  signed  by  our  Mr.  Langsdorf.  Very  respectfully,  Albert 
Fishell,  Mgr."  The  slip  inclosed  reads  as  follows:  "Should 
Bun's  Mercantile  Agency  not  rate  a  party,  and  Bradstreet's 
Agency  should  give  such  party  a  rating  or  report,  and  such 
rating  or  report  is  sufficient  to  be  covered  by  the  system  of  this 
company,  then  and  in  that  case  the  said  L.  A.  Shakman  &  Co. 
may  use  Bradstreet's  Mercantile  Agency  as  a  basis  for  such  party. 
This  special  permission  to  take  effect  November  13,  1889. 
[Signed]  Fred  M.  Wheeler,  Secretary."  The  plaintiff^reacfthe 
letter,  but  not  the  slip,  and  paid  no  attention  to  it,  and  did  not 
return  it.  The  action  was  tried  by  the  court,  jury  being  waived, 
and  the  court  made  findings  of  fact  substantially  as  above  stated. 
As  to  the  disputed  questions  with  regard  to  the  Langsdorf  in- 
dorsement, of  date  November  8th,  the  court  found  favorably 
to  the  plaintiff's  contention,  and  that  it  became  a  part  of  the 
contract  on  that  day.  The  court  further  found  that  the  plain- 
tiff, during  the  period  covered  by  the  contract,  suffered  losses 
within  its  terms,  amounting,  in  the  aggregate  to  $6,502.47,  and 
that,  after  deducting  therefrom  12%  per  cent,  of  such  total, 
and  1%  per  cent,  of  the  plaintiff's  total  sales,  the  net  losses 
covered  by  the  contract  were  $2,856.75.  Due  notice  and  proof 
of  loss  were  also  found,  and  the  court  found,  as  matter  of  law, 
that  the  defendant  is  an  insurance  corporation,  and  that  the 
contract  in  question  is  a  contract  of  insurance.  Judgment  for 
the  plaintiff  for  $2,856.75,  with  interest  and  costs,  was  rendered, 
and  the  defendant  appealed. 


SHAKMAN  v.  U.   S.   CREDIT  CO.  537 

WINSLOW,  J.  (after  stating  the  facts).  We  regard  the  con- 
tract before  us  as  unquestionably  a  contract  of  insurance.  An 
insurance  contract  is  a  contract  whereby  one  party  agrees  to 
wholly  or  partially  indemnify  another  for  loss  or  damage  which 
he  may  suffer  from  a  specified  peril.  The  peril  of  loss  by  the 
insolvency  of  customers  is  just  as  definite  and  real  a  peril  to  a 
merchant  or  manufacturer  as  the  peril  of  loss  by  accident,  fire, 
lightning,  or  tornado,  and  is,  in  fact,  much  more  frequent.  No 
reason  is  perceived  why  a  contract  of  indemnification  against 
this  ever-present  peril  is  not  just  as  legitimately  a  contract  of  in- 
surance as  a  contract  which  indemnifies  against  the  more  familiar, 
but  less  frequent,  peril  by  fire.  This  very  contract  has  been 
(sub  silentio)  construed  as  a  policy  of  insurance  by  the  su- 
preme court  of  New  Jersey.  Credit  System  Co.  v.  Eobertson 
(N.  J.  Sup.)  29  Atl.  421.  The  contract  being,  then,  a  contract 
of  insurance,  and  the  defendant's  business  being  the  making  of 
such  contracts,  it  follows  that  the  defendant  is  an  insurance  cor- 
poration, within  the  meaning  of  sections  1977  and  1978,  Rev.  St. 
Langsdorf  was  its  agent  for  the  purpose  of  soliciting  insurance, 
transmitting  applications,  and  collecting  premiums,  and  re- 
ceived pay  therefor.  He  was,  consequently,  under  section  1977, 
supra,  its  agent  for  all  intents  and  purposes,  and  had  power  to 
make  the  additional  agreement  contained  in  the  indorsement 
dated  November  8th.  Renier  v.  Insurance  Co.,  74  "Wis.  89,  42 
N.  "W.  208.  The  court  has  found,  on  ample  evidence,  that  he 
did  make  that  agreement,  and  the  fact  is  therefore  settled.  •  It  is, 
then,  a  fact  in  the  case  that  a  complete  contract  of  insurance  was 
made,  on  or  about  November  8th,  by  the  terms  of  which  the 
plaintiff  was  to  have  the  right  to  use  the  Bradstreet's  ratings  in 
case  a  given  customer  was  given  no  rating  by  Dun. 

But  it  is  said  that  thejnemorandum  sent  to  the  plaintiff  No- 
vember 26th,  which  permitted  the  use  of  Bradstreet's  reports 
"onfy  afteF'November  13th,  1889,  bcr;mic  effective  and  binding 
by  reason  of  the  plaintiff's  receiving  it  and  failing  to  object 
thereto.  We  are  unable  to  agree  with  this  contention.  The  agree- 
ment of  November  8th,  being  perfect,  the  letter  and  inclosed  mem- 
orandum of  November  26th  could,  at  the  most,  amount  to  nothing 
more  than  a  proposal  to  change  the  terms  of  the  existing  contract. 
This  the  plaintiff  could  do  or  not,  as  he  chose;  but  it  cannot  be 
said  that  he  did  so  unless  he  expressly  agreed  to  the  change, 
or  unless  his  silence  was  legally  equivalent  to  an  express  consent 


538  CREDIT   INDEMNITY  BONDS. 

to  the  proposed  change.  There  was  no  express  agreement  to 
make  the  change,  nor  do  we  think  that  the  simple  failure  to  an- 
swer the  proposal  should  be  construed  as  such  an  agreement,  in 
the  absence  of  all  evidence  showing  that  the  defendant  was  in- 
fluenced in  its  conduct  by  plaintiff's  silence.  An  agreement. in- 
ferred from  silence  must,  in  such  case,  rest  on  the  principle  of 
estoppel;  and  one  essential  element  of  estoppel  is  lacking  here, 
namely,  a  change  of  position  on  the  part  of  the  defendant,  rely- 
ing on  the  plaintiff's  silence,  which  would  result  in  substantial 
injury  to  the  defendant  were  it  not  permitted  to  rely  on  the  es- 
toppel. The  conclusion  necessarily  is  that  the  contract  which  be- 
came perfected,  November  8th,  with  the  Langsdorf  indorsement, 
became  the  contract  governing  the  rights  of  the  parties. 

Another  question  now  arises  upon  the  construction  to  be  given 
to  the  Langsdorf  indorsement.  It  will  be  noticed  that  the  pol- 
icy, though  dated  October  23,  1889,  in  terms  covers  the  period 
of  one  year  commencing  on  the  1st  of  July,  1889,  and  that  it 
insures  against  losses  accruing  for  merchandise  sold  and  de- 
livered during  that  period.  Thus,  the  contract  covers  several 
months'  business  transactions  previous  to  its  date.  It  appears 
irTevidence  that  a  considerable  number  of  the  losses  for  which 
the  plaintiff  has  recovered  judgment  were  suffered  between  July 
1,  1889,  and  the  delivery  of  the  contract,  and  that  these  losses 
arose  from  credits  given  to  parties  who  had  no  credit  rating  in 
Dun's  reports,  but  did  have  such  rating  in  Bradstreet's  reports. 
It  is  now  contended  that  the  Langsdorf  indorsement  is  purely 
prospective  in  its  operation,  and  only  insures  losses  occurring 
after  November  8th ;  so  that,  for  the  losses  occurring  before  that 
date,  covered  by  Bradstreet's  reports  only,  there  can  be  no  re- 
covery. The  indorsement  reads:  ''Should  any  party  to  whom 
above-named  firm  may  sell  goods  not  be  rated,  within  the  sys- 
tem of  this  company,  at  Dun's  Mercantile  Agency,"  etc.  The 
argument  cannot  prevail.  This  indorsement  is  part  of  the  whole ' 
contract.  It  must  be  read  in  connection  with  all  the  other  pro- 
visions of  the  contract,  and  as  though  it  were  incorporated  in 
the  contract  at  the  proper  place.  So  read,  there  can  be  no  doubt 
that  the  contract  refers  to  all  goods  sold  and  credits  given  be- 
tween July,  1889,  and  July,  1890,  and  that  the  right  to  use  the 
Bradstreet  ratings  in  the  proper  cases  was  intended  to  be  as 
broad  in  its  terms  as  to  time'  as  the  right  to  use  the  Dun  ratings. 

Subdivision  2  of  the  terms  and  conditions  of  the  policy  pro- 


SHAKMAN   v.   U.    S.   CREDIT  CO.  539 

vides  that,  in  calculating  ''losses,  no  credit  that  may  have  been 
given  shall  b"e"mcluded  therein,  exceeding  a  credit  of  30  per  cent, 
on  the  lowest  capital  rating  such  party  or  parties  were  rated  at  in 
said  mercantile  agency's  books  or  reports."  In  a  number  of 
instances  of  losses  the  plaintiff  had  given  the  insolvent  debtors 
a  larger  credit  than  30  per  cent,  of  their  lowest  capital  rating. 
The  court  allowed,  in  such  cases,  30  per  cent,  of  such  rating,  and 
disallowed  the  excess.  It  is  claimed  by  appellant  that  the  clause 
means  that  the  entire  credit  is  to  be  excluded,  and  not  simply 
the  excess  above  30  per  cent,  of  the  rating.  This  is  purely  a 
matter  of  construction  of  language,  and  our  construction  agrees 
with  that  of  the  trial  court,  namely,  that  it  is  only  that  part  of 
the  credit  exceeding  30  per  cent,  of  the  rating  which  is  to  be 
excluded. 

It  is  claimed  that  a  loss  of  $300  suffered  by  the  failure  of  one 
Simansky  was  improperly  allowed.  It  appears  that  Simansky's 
name  appears  in  Dun's  reports  with  the  notation  "Blank  3"; 
that  is,  no  capital  rating,  and  credit  "fair."  In  Bradstreet's 
reports,  however,  he  appears  rated  "X  D,"  which  means  $1,000 
to  $2,000  capital,  credit  fair.  It  seems  to  us  that  this  loss  was 
properly  allowed.  Simansky  had  no  capital  rating  in  Dun's 
reports.  The  system  of  the  defendant  required  both  a  capital 
and  a  credit  rating.  This  was,  therefore,  a  case  clearly  within 
the  Langsdorf  indorsement,  where  the  party  was  not  "rated 
within  the  system  of  the  company"  at  Dun's  Agency,  and  was 
so  rated  in  Bradstreet's  Agency. 

This  case  was  tried  and  submitted  to  the  court  February  20, 
1894,  and  taken  under  advisement  by  the  court,  and  held  under 
advisement  until  October  of  the  same  year.  The  original  find- 
ings were  signed  and  filed  October  2d,  and,  on  motion  of  defend- 
ant, were  amended  in  some  particulars  on  the  27th  day  of  Octo- 
ber, on  which  day  the  appellant's  attorneys  made  proof  to  the 
court  that,  on  the  2d  day  of  October,  the  court  of  chancery  of 
New  Jersey  had  by  decree  declared  that  the  defendant  had 
ceased  to  be  a  corporation,  and  had  forfeited  franchises  and 
rights  under  the  laws  of  New  Jersey,  and  appellant's  attorneys 
objected  to  the  entry  of  judgment  for  that  reason.  Thereupon 
the  court  ordered  the  findings  to  be  dated  and  filed  as  of  March 
3d,  so  as  to  bring  them  within  the  term  at  which  the  case  was 
tried,  and  also  rendered  judgment  nunc  pro  tune  as  of  that  day. 
This  was  right.  The  action  was  upon  contract.  Where  such 


540  CREDIT   INDEMNITY  BONDS. 

an  action  has  been  fully  tried  and  submitted,  and  taken  under 
advisement  by  the  court,  and,  pending  the  decision,  a  party 
dies,  the  court  will  not  allow  the  action  to  abate,  but  will  enter 
judgment  as  of  the  time  when  the  action  was  submitted.  The 
judgment  forfeiting  the  franchises  of  the  corporation  could 
amount  to  nothing  more  than  the  death  of  an  individual.  1 
Black,  Judgm.  §  127 ;  Mitchell  v.  Overman,  103  U.  S.  62. 

Judgment  affirmed. 


PEOPLE    v.   MERCANTILE    CREDIT    GUARANTEE    CO. 

1901. 

166  N.  T.  416;  60  N.  E.  Eep.  24. 

O'BRIEN,  J.  The  defendant,  as  its  name  indicates,  was  in- 
corporated for  the  purpose  of  making  contracts  of  insurance  or 
indemnity  with  traders  and  others  to  protect  them  from  loss 
in  their  business  by  reason  of  the  failure  or  insolvency  of  their 
customers.  It  seems  th#t  the  company  itself  failed  and  passed 
into  the  hands  of  a  receiver,  and  two  of  the  parties  who  had  been 
insured  under  its  contracts  presented  claims  to  the  receiver  as 
creditors.  The  receiver  rejected  the  claims,  and  upon  a  trial 
of  the  questions  before  a  referee  there  was  a  report  that  the 
claims  were  not  covered  by  the  contract  or  policy  of  the  company. 
The  report  was  confirmed,  and  judgment  against  the  claimants 
entered  accordingly,  which  has  been  affirmed  at  the  appellate 
division  by  a  divided  court. 

There  is  no  dispute  about  the  facts,  since  they  were  found 
by  the  referee  and  appear  in  the  record,  and  are  embraced  in 
the  questions  certified  to  us  by  the  court  below.  The  question 
before  this  court  involves  a  construction  of  the  policy  or  con- 
tract which  the  company  delivered  to  the  claimants,  and  which 
the  latter  insist  entitles  them  to  payment  from  the  assets  in  the 
hands  of  the  receiver.  It  will  be  convenient  to  consider  the  two 
claims  separately,  since  the  policies  and  the  conditions  govern- 
ing the  rights  of  the  parties  are  different.  The  claim  of  the 
"Winsted  Hosiery  Company  amounts  to  $364.24,  made  up  of 
three  distinct  items  or  debts  due  the  claimant  from  three  dif- 
ferent customers  for  goods  sold,  namely:  One  <3retz,  $101.70; 


PEOPLE  v.  MERCANTILE  ETC.  CO.  541 

one  Moses,  $176.14;  and  Robie  &  Co.,  $86.40.  The  two  former 
debtors  are  in  Texas,  and  the  latter  in  Illinois.  By  the  terms 
of  the  policy  the  defendant,  in  consideration  of  $90,  insured 
the  hosiery  company  "to  an  amount  not  exceeding  three  thou- 
sand dollars  against  loss  sustained  by  reason  of  the  insolvency 
of  debtors  owing  the  insured  for  merchandise  usually  dealt  in, 
sold  and  delivered  in  the  regular  course  of  business."  The 
policy  contains  numerous  conditions  and  stipulations  which 
qualify  the  general  obligation  of  the  insurer,  but  we  are  now 
concerned  with  only  one  of  those  conditions,  which  was  as  fol- 
lows: "The  term  'loss  sustained  by  the  insolvency  of  debtors' 
is  agreed  to  mean  losses^  upon  sales  made  by  the  insured  to  > 
debtors  who  have  made  a  general  assignment  for  the  benefit  of  *^ 
their  creditors."  The  question,  therefore,  is  whether,  upon  the 
facts  found,  the  three  debtors  named,  to  whom  the  insured  sold 
goods,  and  who  failed,  made  a  general  assignment  for  the  bene- 
fit of  their  creditors,  within  the  fair  meaning  of  this  provision 
of  the  defendant's  policy.  They  did  make  written  transfers, 
respectively,  of  substantially  all  their  property  to  pay  or  secure 
debts,  and  the  question  certified  is  whether  either  of  the  three 
instruments  appearing  in  the  record  constitutes  a  general  as- 
signment, within  the  meaning  of  the  policy,  "when,  at  the  time 
of  their  respective  execution,  the  property  severally  described 
therein  constituted  substantially  all  the  property  of  the  re- 
spective debtors,  and  was  at  once  delivered,  and  the  respective 
debtors  thereupon  at  once  .ceased  to  do  business. ' ' 

Before  proceeding  to  answer  the  question,  it  would  seem  to 
be  necessary  to  inquire  with  respect  to  the  scope,  purpose,  and 
meaning  of  the  policy  under  which  the  claim  is  made.  It 
should  be  interpreted  in  such  a  way  as  to  accomplish  the  general 
purpose  in  view,  and  at  the  same  time  give  effect  to  all  the  con- 
ditions according  to  their  fair  and  reasonable  meaning.  It 
would  be  very  difficult  indeed  for  any  business  man  to  deter- 
mine the  effect  of  all  the  conditions  that  appear  in  the  policy 
in  question,  but  not  very  difficult  to  ascertain  what  the  claim- 
ants had  the  right  to  understand  by  the  condition  that  we  are 
now  concerned  with.  The  purpose  was  to  indemnify  the  claim- 
ant from  loss  by  insolvency  of  such  debtors  as  had  made  a 
general  assignment  for  the  benefit  of  creditors.  The  claimant 
has  sustained  the  loss,  since  an  assignment  has  been  made.  The 
assignment  or  transfer  in  each  case  was  for  the  benefit  of  cred- 


542  CREDIT   INDEMNITY  BONDS. 

itors  or  a  creditor,  and  it  is  general  in  the  sense  that  it  em- 
braced substantially  all  the  property  that  the  debtor  had.  The 
assignee  in  each  case  went  into  possession,  and  the  assignor 
ceased  to  do  business.  The  debtor  owing  the  claimant  thereby 
lost  the  title,  possession,  and  dominion  over  all  he  had,  and 
thereby  became  disabled  to  pay  any  one  else.  It  would  seem  to 
be  reasonable  in  such  a  case  to  conclude  that  the  claimant  had 
sustained  a  loss  by  reason  of  the  insolvency  of  a  debtor  who  had 
made  a  general  assignment,  within  the  fair  meaning  of  the 
policy. 

The  contract  in  question  was  pregared  by  the  defendant,  and 
intended  for  use,  not  in  any  particular  state  or  locality,  but 
throughout  the  country  generally.  The  local  law  of  any  state 
with  respect  to  its  construction  is  not  to  govern.  Each  state 
may  have  laws  and  statutes  of  its  own  that  govern  general  as- 
signments for  the  benefit  of  creditors,  but  these  terms  are  not 
used  in  the  policy  in  question  in  any  statutory  or  local  sense. 
When  the  defendant  indemnified  against  insolvency  of  debtors 
who  had  made  a  general  assignment  for  the  benefit  of  creditors, 
the  contract  is  not  to  be  interpreted  technically,  but  the  lan- 
guage must  be  held  to  mean  what  the  words  import  to  the 
commercial  world.  Hence  the  character  of  the  instrument  or 
the  nature  of  the  transaction  must  be  determined  by  the  effect 
it  has  upon  the  debtor  in  the  business  community,  and  not  by  the 
name  which  the  parties  see  fit  to  give  to  it..  It  may  be  a  stat- 
utory assignment,  a  mortgage,  a  confession  of  judgment,  or 
some  other  contrivance,  the  purpose  and  effect  of  which  is  to 
dispose  of  all  the  debtor's  assets  and  disable  him  from  paying 
his  debts.  In  such  cases  the  loss  is  fairly  within  the  scope  of 
the  indemnity  secured  to  the  insured  by  this  policy.  It  is  the 
completeness  of  the  transfer  and  its  effect  upon  the  debtor  in 
business,  and  not  the  name  or  form  of  the  instrument  or  trans- 
action, that  gives  it  character.  Any  transfer  by  a  trader  or 
merchant  of  iall  his  stock  and  business,  when  it  covers  substan- 
tially all  his  property,  may  be  an  assignment,  within  the  mean- 
ing of  the  policy,  in  spite  of  its  form  or  the  name  given  to  it. 
Brown  v.  Guthrie,  110  N.  Y.  441, 18  N.  E.  254;  Britton  v.  Lorenz, 
45  N.  Y.  51 ;  Dana  v.  Lull,  17  Vt.  390 ;  Kendall  v.  Bishop,  76 
Mich.  634,  43  N.  W.  645 ;  White  v.  Cotzhausen,  129  U.  S.  329 : 
9  Sup.  Ct.  309,  32  L.  Ed.  677.  In  case  of  ambiguity  or  uncer- 
tainty concerning  the  meaning  of  conditions  in  contracts  of  this 


PEOPLE  v.  MERCANTILE  ETC.   CO.  54:3 

character,  that  meaning  is  to  be  adopted  which  is  most  favorable  /\ 
to  the  assured.  Allen  v.  Insurance  Co.,  85  N.  Y.  473.  That  rule 
is  justly  applicable  to  the  words  used  in  the  policy  in  question 
when  there  is  nothing  to  show  that  they  were  used  in  any  nar- 
row, special,  or  local  sense.  We  think,  therefore,  that  the  three 
instruments  described  in  the  question  certified  were  general  as- 
signments, within  the  meaning  of  the  policy.  This  proposition 
will  be  made  clearer  by  a  brief  reference  to  each  of  the  instru- 
ments. The  transfer  by  Getz.  one  of  the  debtors  of  the  claim- 
ant, was  made  on  the  20th  day  of  April,  1896,  in  Texas.  On 
its  face  it  assigns  and  transfers  to  a  trustee  named  all  his  stock 
of  goods,  including  fixtures  and  furniture  of  all  kinds  in  his 
store,  in  trust  for  the  benefit  of  creditors.  The  trustee  is  di- 
rected to  sell  the  property,  and,  after  deducting  the  expenses 
of  executing  the  trust,  to  distribute  the  proceeds  among^jthe^ 
list,  of  creditors  named.  The  instrument  is  duly  acknowledged 
and  recorded.  If  we  were  disposed  to  hold — as  we  are  not — 
that  the  general  assignment  referred  to  in  the  policy  is  the 
statutory  assignment  for  the  benefit  of  creditors  known  to  the 
laws  of  this  state,  it  would  be  difficult  to  show  wherein  this 
instrument  is  in  any  substantial  sense  defective.  TJb^jjjstpifc.-* 
ment  made  by  Moses^  in  the  same  state  bears  date  October  18, 
1896,  and  is  in  the  same  form  substantially.  It  assigns  to  a 
person  named  all  his  stock,  fixtures,  and  store  furniture  in  trust 
for  the  benefit  of  a  long  schedule  of  creditors  named,  with  di- 
rection to  sell  and  distribute.  The  trust  was  accepted  by  the 
trustee,  and  the  instrument  is  acknowledged  and  recorded.  At 
the  close  of  the  instrument,  however,  is  the  statement  that  it  is  . 

1 '  intended  as  a  mortgage. ' '  This  statement  does  not  change  the  )(  V- 
character  of  the  transaction  in  the  least.  To  hold  otherwise 
would  be  to  sacrifice  substance  to  mere  names  and  words. 
It  could  not  very  well  be  a  mortgage  in  any  legal  or  proper 
sense.  The  assignor  did  not  owe  the  assignee  any  debt,  and 
consequently  the  latter  could  not  well  be  a  mortgagee  in  the 
ordinary  sense.  If  it  was  a  mortgage  at  all,  it  was  a  trust  mort- 
gage,— that  is,  for  the  benefit  of  creditors;  and  I  am  unable 
to  perceive  any  difference  betwen  that  kind  of  a  trust  and  any 
other. 

The  third  instrument,  made  by  Mrs.  Robie  in  the  state  of 
Illinois  on  the  22d  of  December,  1896,  is  undoubtedly  in  form 
a  chattel  mortgage,  but  it  does  not  follow  that  it  is  not  also  a 


544  CREDIT   INDEMNITY  BONDS. 

general  assignment,  within  the  meaning  of  the  policy.  It  con- 
veyed to  a  person  named  all  the  stock  of  merchandise  in  the 
store  in  the  broadest  terms,  including  fixtures,  furniture,  dyna- 
mos, lamps,  and  even  the  horse,  wagon,  and  harness  used  in  the 
business.  This  was  stated  to  be  as  security  for  over  $30,000 
in  notes  bearing  even  date  with  the  mortgage,  all  payable  in 
different  sums  at  different  times,  but  all  within  six  months, 
with  the  usual  unsafe  clause.  We  have  also  the  fact  stated  in 
the  question  that  the  assignor  or  mortgagor  gave  up  the  pos- 
session and  went  out  of  business,  and  that  the  transfer  covered 
substantially  all  of  her  property.  This  transaction  is  none 
the  less  a  general  assignment,  within  the  meaning  of  the  policy, 
because  it  was  made  to  take  the  form  of  a  mortgage.  The  trans- 
fer was  general,  since  it  covered  all  the  assignor  had.  The 
fact  that  it  was  for  the  benefit  of  one  creditor  instead  of  all, 
only  adds  to  the  completeness  of  the  insolvency.  It  had  all  the 
effect  upon  the  debtor  and  her  creditors  that  a  general  assign- 
ment for  the  benefit  of  creditors  in  the  strictest  statutory  sense 
could  have,  and  so  we  think  it  is  a  general  assignment,  within 
the  fair  meaning  of  the  policy.  It  follows  that  the  claims  of 
the  hosiery  company,  which  have  been  described,  should  have 
been  allowed.  A  general  assignment,  within  the  meaning  of  1 
/the  policy,  may  be  for  the  benefit  of  a  single  creditor  or  all.  \ 
/  It  may  be  in  the  form  prescribed  by  state  statutes,  or  an  as-  \ 
I  signment  at  the  common  law.  The  form  of  the  transaction  is 
V  not  so  material  as  the  result,  when  it  operates  to  divest  the  debtor  \ 
of  substantially  his  entire  property  and  closes  out  his  business. 
Such  a  transfer  means  insolvency,  within  the  fair  scope  of  the 
indemnity.  Wheel  Co.  v.  Fielding,  101  N.  Y.  504,  5  N.  E.  431 ; 
Tiemeyer  v.  Turnquist,  85  N.  Y.  516;  Knapp  v.  McGowan,  96 
N.  Y.  75 ;  Vanderpoel  v.  Gorman,  140  N.  Y.  563,  35  N.  E.  932, 
24  L.  R.  A.  548. 

The  other  claim  was  presented  by  the  Daniel  Forbes  Com-  X 
pany  of  Chicago  under  a  different  policy,  involving  the  mean- 
ing of  other  conditions.  The  general  purpose  expressed  is  the 
same  as  in  the  policy  just  considered,  and  it  expired  on  the 
30th  of  April,  1897.  The  claim  was  rejected  on  the  ground  that 
it  had  not  accrued  within  the  life  of  the  policy.  It  amounts 
to  $441.97  for  goods  sold  to  an  insolvent  debtor,  and  it  is 
claimed  that  the  following  conditions  of  the  policy  exclude 
it  from  sharing  in  the  assets  held  by  the  receiver:  (1)  "Only 


PEOPLE  v.  MERCANTILE  ETC.  CO.  545 

such  amounts  as  are  actually  owing  by  an  insolvent  debtor 
to  the  insured  at  the  date  of  his  insolvency  shall  be  taken  into 
the  calculation  of  losses  under  this  policy,  and  only  when  the 
said  debtor  has  made  a  general  assignment  for  the  benefit  of  his 
creditors,  or  has  been  declared  insolvent  in  legal  or  judicial 
proceedings,  or  an  execution  has  been  returned  unsatisfied  on 
a  judgment  obtained  against  him  by  the  insured,  or  some  other 
creditor,  for  merchandise  sold  to  said  debtor  during  the  period 
covered  by  this  policy,  provided  said  execution  has  not  been 
returned  after  the  appointment  of  a  receiver  or  trustee  of  the 
property  of  the  debtor."  (2)  "This  policy  shall  expire  on 
the  30th  of  April,  1897,  and  any  loss  by  reason  of  the  insolvency 
of  any  debtor  after  said  time  shall  not  be  provable  hereunder." 
(3)  "Final  verified  proofs  of  loss  must  be  presented  to  the 
company  within  sixty  days  after  the  expiration  of  the  policy, 
and  no  loss  is  payable  unless  included  in  such  proofs  submitted 
within  that  period.  Losses  to  be  adjusted  and  paid  within  sixty 
days  after  final  proofs." 

The  claimant's  debt  was  for  goods  sold,  and  judgment  was 
recovered  thereon,  and  execution  issued,  12  days  before  the  pol- 
icy expired,  but  the  execution  was  not  returned  unsatisfied  till 
3  days  after, — that  is,  on  May  3,  1897, — and  the  question  cer- 
tified to  us  is:  "Did  the  return  of  the  execution  unsatisfied 
*  *  *  on  May  3,  1897,  constitute  it  an  insolvent  debtor,  for 
which  the  *  *  *  company  was  liable  under  the  terms  of  the 
Daniel  Forbes  policy?"  I  think  that  this  claim  is  fairly  within 
the  indemnity  provided  by  the  policy.  (1)  The  conditions  re- 
quire that  the  judgment  be  obtained  "for  merchandise  sold 
to  said  debtor  during  the  period  covered  by  this  policy." 
That  condition  is  satisfied  by  the  facts  of  this  case.  (2)  Any 
loss  by  reason  of  the  insolvency  of  the  debtor  after  the  expira- 
tion of  the  policy  is  not  provable.  That  means  that  the  loss 
and  the  insolvency  must  occur  within  the  year  covered  by  the 
policy.  Both  facts  did  occur  within  that  time  in  this  case. 
(3)  There  is  no  express  limitation  in  the  policy  with  respect 
to  the  time  when  the  execution  is  to  be  returned,  except  that 
it  must  not  be  returned  "after  the  appointment  of  a  receiver 
or  trustee  of  the  property  of  the  debtor. ' '  That  did  not  happen 
in  this  case.  (4)  The  only  limitation  in  the  policy  concern- 
ing the  return  of  the  execution  is  implied  in  the  condition  that 
final  verified  proofs  of  loss  must  be  presented  within  60  days 

85 


546  CREDIT   INDEMNITY  BONDS. 

after  tlie  policy  expires,  and  no  loss  is  payable  unless  included 
in  such  proofs  submitted  within  that  time.  It  may  be  possi- 
ble that,  unless  the  execution  is  returned  within  the  60  days 
limited  for  presenting  final  proofs,  the  insured  will  not  be  able 
to  make  proof  of  his  claim.  But  in  this  case  the  return  was 
made  within  3  days  after  the  policy  expired,  so  that  the  in- 
sured could  and  did  present  the  claim  in  his  proofs.  To  sus- 
tain the  decision  under  review  it  is  necessary  to  hold  that  not 
only  must  the  goods  be  sold  within  the  life  of  the  policy,  and 
the  judgment  rendered  and  execution  issued,  but  that  it  must 
be  returned  unsatisfied  within  that  time,  which  is  one  year; 
and  that,  too,  when  there  is  no  language  in  the  policy  or  in  the 
conditions  which  would  warrant  such  construction.  It  would 
reverse  the  legal  rule  for  the  interpretation  of  such  conditions, 
and  require  us  to  hold  that  they  are  not  to  be  construed  liber- 
ally in  favor  of  the  insured,  but  strictly  against  him,  by  im- 
porting into  the  contract  words  that  the  parties  have  not  used. 
The  return  of  the  execution  does  not  constitute  the  main  fact 
of  insolvency,  but  is  simply  evidence  of  that  fact;  and  if  the 
insured,  when  presenting  his  proofs  of  loss  within  the  time  stip- 
ulated, can  show  that  it  has  then  been  returned,  that  is  a  com- 
pliance with  the  terms  of  the  policy.  Slomau  v.  Guarantee 
Co.,  112  Mich.  258,  70  N.  W.  886.  The  contention  that  the 
goods  must  be  sold,  judgment  recovered,  and  execution  is- 
sued and  returned  unsatisfied,  all  within  the  year,  would  de- 
feat, in  most  cases,  every  purpose  of  the  insured  in  entering 
into  the  contract,  and  destroy  all  benefits  to  be  derived  by  him 
under  it.  The  sheriff  in  this  state  has  60  days  within  which 
to  return  the  process,  and  perhaps  in  other  states  even  a 
longer  time,  and,  if  the  insurer  can  be  held  only  on  such  judg- 
ments and  executions  as  have  been  returned  unsatisfied  with- 
in the  year  when  the  goods  are  sold,  the  indemnity  to  the  in- 
sured is  a  delusion.  It  is  very  clear  that  no  such  construction 
should  be  adopted  unless  the  language  employed  admits  of  no 
other.  When  the  conditions  of  this  policy  are  carefully  read, 
it  will  be  seen  that  such  an  extreme  and  destructive  stipula- 
tion is  not  to  be  found.  No  language  has  been  employed  to  limit 
the  liability  of  the  insurer  to  debts  upon  which  an  execution 
has  been  returned  unsatisfied  within  the  year,  and  that  proposi- 
tion comprehends  the  whole  question.  Such  a  limitation  cannot 
be  based  upon  conditions  that  are  obscure  or  of  doubtful  mean- 


SLOMAN   v.    MERCANTILE  ETC.   CO.  547 

ing.     Wadsworth  v.  Tradesmen's  Co.,  132  N.  Y.  540,  29  N.  E.' 
1104. 

I  cannot  perceive  that  the  case  of  Talcott  v.  Insurance  Co., 
9  App.  Div.  433,  41  N.  Y.  Supp.  281,  affirmed  in  this  court 
without  opinion  (163  N.  Y.  577,  57  N.  E.  1125),  has  any  bear- 
ing upon  the  questions  now  before  us.  That  action  was  against 
another  company  upon  a  very  different  instrument.  That  case 
turned  upon  a  condition  in  the  contract  to  the  effect  that  the 
insurer  should  not  be  liable  for  any  losses  of  which  it  did  not 
receive  notice  during  the  life  of  the  policy.  The  present  appeal 
involves  no  such  question.  What  must  be  found  in  the  present 
policy  in  order  to  sustain  the  decision  below  is  a  plain  condi- 
tion that  the  insurer  will  not  be  liable  for  any  losses  unless 
an  execution  is  returned  unsatisfied  before  the  date  of  the  ex- 
piration of  the  policy.  No  such  condition  can  be  found  in  the 
instrument.  The  condition  is  that  the  insurer  is  not  to  be  liable 
for  any  loss  not  included  in  proofs  of  loss  to  be  presented  within 
60  days  after  the  policy  expires. 

Our  conclusion,  therefore,  is  that  the  claims  presented  to  the 
referee,  and  here  discussed,  should  have  been  allowed,  the  ques- 
tions certified  should  be  answered  in  the  affirmative,  the  order 
of  the  appellate  division  and  the  special  term  should  be  re- 
versed, with  costs,  and  the  case  remanded  to  the  special  term 
for  a  further  hearing. 

PARKER,  C.  J.,  and  HAIGHT,  VANN,  and  LANDON,  JJ.,  concur. 
BARTLETT  and  MARTIN,  JJ.,  concur,  except  as  to  the  claim  of 
the  Forbes  Company,  as  to  which  they  dissent.  Execution 
should  be  returned  within  the  life  of  the  policy. 

Ordered  accordingly. 


SLOMAN  v.  MERCANTILE  GUARANTEE  CO.     1897. 
112  Mich.  258;  70  N.  W.  Rep.  886. 

HOOKER,  J.  This  action  was  brought  upon  an  insurance  or 
guaranty  policy,  which  provided  that,  "in  consideration  of  the 
sum  of  $72,  hereby  insures  S.  A.  Sloman  &  Co.,  of  Detroit,  in 
the  state  of  Michigan,  to  an  amount  not  exceeding  $2,000, 


548  CREDIT   INDEMNITY  BONDS. 

against  loss  sustained  by  reason  of  the  insolvency  of  debtors 
owing  the  insured  for  merchandise  usually  dealt  in,  sold,  and 
delivered  in  regular  course  of  business,  between  the  1st  day  of 
April,  1893,  and  the  31st  day  of  March,  1894,  both  inclusive, 
in  excess  of  %  per  cent,  on  the  total  gross  sales  and  deliveries 
made  during  said  period,  subject  to  the  terms  and  conditions 
printed  below  or  attached  hereto.  This  policy  shall  expire  on 
the  31st  day  of  March,  1894."  The  insured  sent  9  notices  of  loss 
to  the  insurer  before  March  31,  1894,  and  22  after  that  date, 
but  within  90  days  after  such  date.  Those  last  mentioned  were 
admitted  in  evidence,  subject  to  an  objection  "that  these  losses 
were  not  covered  by  the  policy,  and  were  not  sent  in  during  the 
life  of  the  policy." 

Under  a  request  to  charge,  it  is  claimed  that  the  court  should 
have  excluded  from  consideration  by  the  jury  all  claims  of  loss 
not  shown  to  have  accrued  before  April  1,  1894.  The  question 
discussed  is  whether  the  policy  covers  losses  where  the  insolv- 
ency or  act  of  the  debtor  which  makes  the  debt  a  loss,  within 
the  meaning  of  the  policy,  occurred  after  March  31,  1894,  that 
being  the  date  of  the  expiration  of  the  policy;  and  counsel  for 
the  plaintiff  argue  that  it  cannot  be  reasonably  said  that  the 
parties  intended  that  the  sales  on  the  last  day,  viz.,  March  31st, 
should  not  be  protected  by  the  policy,  as  would  be  practically 
the  case  if  the  defendant's  claim  is  the  correct  one.  He  (the 
plaintiff)  urges  that  the  loss  may  occur  afterwards,  and  that 
if  the  insured  serves  his  notice  within  10  days  after  learning 
of  the  loss,  and  makes  his  final  proofs  of  loss  within  90  days 
after  the  date  upon  which  the  policy  expires,  he  may  recover 
for  a  loss  that  occurs  after  such  expiration.  From  that  portion 
of  the  policy  quoted,  it  is  said  that  the  losses  to  be  covered  are 
those  that  arise  upon  sales  made  between  the  1st  day  of  April, 
1893,  and  March  31,  1894.  There  seems  to  be  no  dispute  about 
this.  In  addition  to  that  portion  hereinbefore  quoted,  the  policy 
provides  that  "the  insured  shall  notify  this  company  by  regis- 
tered mail  ...  of  the  insolvency  of  any  debtor,  within  ten 
days  after  he  receives  information  of  the  same";  also,  "final 
verified  proof  of  loss  ....  must  be  presented  .... 
within  90  days  after  the  expiration  of  the  policy";  and,  again, 
"no  loss  shall  be  payable  unless  included  in  said  proof  of  loss 
submitted  within  said  stated  period.  Should,  however,  this  com- 
pany renew  the  policy,  or  issue  a  new  one,  on  or  before  the 


SLOMAN   v.   MERCANTILE   ETC.    CO.  549 

expiration  hereof,  a  loss  occurring  after  such  expiration,  on  a  N, 
sale  and  delivery  of  merchandise,  made  during  the  existence  of 
the  policy,  shall  be  payable  in  the  same  manner  as  if  it  occurred 
under  the  renewal  or  new  policy. "  It  is  obvious  that  this  policy 
contemplates  a  credit  business,  for  there  would  be  nothing  to 
insure  if  it  does  not.  The  time  and  terms  of  credit  are  not 
fixed,  nor  can  we  indulge  in  any  assumptions  upon  the  subject 
beyond  the  inference  that  the  usages  of  trade  in  this  respect 
were  expected  to  be  followed.  Of  necessity,  there  would  be 
sales  made  during  a  time  immediately  preceding  March  31,  1894, 
upon  which  the  plaintiffs  would  receive  no  indemnity  under  this 
policy  if  defendant's  construction  is  to  be  adopted,  unless  in- 
solvency should  immediately  follow  the  purchase.  The  sales 
made  during  the  period  are  clearly  covered  by  the  policy,  and 
it  is  improbable  that  it  was  intended  that  the  insured  should 
be  deprived  of  indemnity  upon  such  sales;  and,  unless  the 
policy  clearly  indicates  such  intent,  the  writing  should  not  be 
so  construed.  The  clauses  which  are  said  to  give  the  policy 
such  effect  are  the  statement  that  "this  policy  shall  expire  on 
the  31st  day  of  March,  1894,"  and  the  clause  relating  to  re- 
newals, already  quoted.  -  Under  the  several  provisions  quoted, 
the  right  to  recover  a  loss  depends  upon  the  presentation  of 
final,  verified  proof  of  loss  within  90  days  after  the  expiration 
of  the  policy.  To  this  there  is  an  exception,  viz.,  in  case  where 
a  new  policy  or  renewal  is  issued  on  or  before  the  expiration  of 
the  old  policy,  in  which  case  the  intent  is  plain  that  the  insured 
should  be  permitted  to  recover  for  a  loss  occurring  after  the 
expiration  of  the  original  policy,  at  any  time  when  losses  oc- 
curring under  the  renewal  might  be  recovered.  This  appears 
from  the  last  clause  mentioned,  and  is  dependent  upon  it;  and 
it  is  not  necessary  to  infer  from  that  provision  that  losses  oc- 
curring after  the  31st  of  March  are  not  recoverable  at  all,  unless 
by  reason  of  the  renewal.  It  is  just  as  consistent  to  say  (so  far 
as  this  provision  is  concerned)  that  the  loss  occurring  thereafter 
is  limited  to  cases  where  proof  is  filed  within  90  days  as  to  say 
that  they  are  excluded  altogether,  unless  the  policy  is  renewed. 
This  leaves  the  contention  with  no  other  support  than  the  state- 
ment regarding  the  expiration  of  the  policy,  which  is  met  by 
the  improbability  of  parties  intending  to  take  all  substantial 
benefit  away  from  the  insured  upon  a  considerable  portion  of 
the  sales  actually  covered  by  the  policy,  and  an  extension  of  90 


550  CREDIT   INDEMNITY  BONDS. 

days,  or  (perhaps  more  properly  speaking)  a  limitation  to  90 
days,  of  the  time  within  which  proofs  should  be  made  regarding 
losses  upon  sales  made  during  the  life  of  the  policy.  We  are 
of  the  opinion  that  the  fairer  view  to  take  is  that  the  provision 
in  relation  to  the  expiration  of  the  policy  refers  to  the  time 
when  sales,  to  be  covered  thereby,  shall  cease,  and  that  it  does 
not  determine  the  time  when  losses  must  occur  upon  such  sales, 
but  that  these  shall  be  recoverable,  regardless  of  that  date,  sub- 
ject to  the  limitation  as  to  final  proof.  This  conclusion  is  justi- 
fied by  the  rule  that  an  ambiguity,  in  an  instrument  is  to  be 
resolved  against  the  draftsman,  which  is  supported  by  authori- 
ties cited  by  counsel.  Hee^Tebbets  v.  Guarantee  Co.,  19  C.  C. 
A.  281,  73  Fed.  95;  Wallace  v.  Insurance  Co.,  41  Fed.  742; 
Wadsworth  v.  Tradesmen's  Co.,  132  N.  Y.  540,  29  N.  E.  1104; 
Guarantee  Co.  v.  Wood,  15  C.  C.  A.  563,  68  Fed.  529 ;  Bank  v. 
Wilkin  (Wis.),  69  N.  W.  355;  Shakman  v.  System  Co.  (Wis.), 
66  N.  W.  532. 

We  think  the  court  did  not  err  in  admitting  proof  of  the 
losses  which  occurred  after  March  31,  1894.  The  final  proofs 
of  loss  were  received  in  evidence  against  objection,  and  the 
court  failed  to  instruct  the  jury  (as  requested)  that  such  proof 
could  not  be  taken  as  proof  of  any  fact  therein  contained.  We 
are  satisfied  that  such  document  was  not  proper  evidence  of  the 
fact  of  loss,  but  if  there  was  not  other  evidence  of  loss,  upon 
each  of  the  items  submitted  to  the  jury,  counsel  do  not  show  or 
state  the  fact.  No  testimony  was  offered  by  defendant 's  counsel, 
and  the  prima  facie  case  of  plaintiff,  not  being  contradicted, 
was  sufficient  evidence,  and  defendant  was  not  injured  by  the 
failure  to  give  this  request.  Counsel  say  that  this  document  was 
assumed  to  be  prima  facie  evidence  of  the  claim,  but  we  find 
testimony  which  supports  it.  Mr.  Sloman  testified,  without  ob- 
jection, that  the  paper  "correctly  represents  the  insolvent's  ac- 
counts and  losses  sustained,"  etc.  Upon  cross-examination  he 
was  examined  at  length  upon  the  respective  items. 

The  next  important  question  raised  relates  to  the  alleged  re- 
fusal to  instruct  the  jury  that  "there  must  be  borne  by  the 
plaintiffs  losses  amounting  to  $525  before  the  defendant's  lia- 
bility begins."  The  court  did  instruct  the  jury  upon  this  sub- 
ject. He  said:  "It  appears  that,  in  estimating  the  losses  under 
the  terms  of  this  contract,  the  amount  of  yearly  sales  which  the 
plaintiffs  were  authorized  to  make,  as  far  as  this  contract  bears 


SLOMAN   v.   MERCANTILE   ETC.    CO.  551 

upon  the  losses  in  this  ease,  was  $70,000.  It  also  appears  that 
there  is  to  be  deducted  from  these  losses  three-quarters  of  one 
per  cent.,  according  to  the  terms  of  this  policy."  If  it  ap- 
peared that  this  meant  three-fourths  of  1  per  cent,  upon  the 
losses,  instead  of  upon  $70,000,  it  would  be  erroneous;  but 
there  is  everything  to  indicate  that  the  plaintiffs'  counsel  made 
no  such  claim,  and  that  all  concerned  understood  the  amount 
to  be  $525.  Apparently,  the  court  supposed  that  he  was  giving 
the  substance  of  the 'request,  as  indeed  he  was  if  the  amount 
was  not  in  dispute.  His  attention  was  not  called  to  the  matter 
by  exception  or  otherwise,  and  we  should  not  reverse  the  case 
upon  a  technical  construction  of  language  if  it  misled  no  one. 

Error  is  assigned  on  the  refusal  to  direct  the  jury  "that  the 
loss  claimed  on  A.  S.  McDonald's  account  was  not  a  loss  under 
the  terms  of  the  policy."  Mr.  Sloman  said  that  it  appeared 
that  all  that  remained  of  this  item  consisted  of  ^attorney 's  fees, 
protest  fees^  and  expenses,  and  sundry  small  claims,  which  Mo- 
T)onald  would  not  recognize  or  pay,  and  which  they  did  not 
care  to  litigate.  Counsel  say  that  this  testimony  shows  that  the 
entire  claim  was  for  attorney's  fees,  expenses,  interest,  and  pro- 
test fees,  and  in  no  sense  a  claim  for  goods  sold  and  delivered, 
and  was  not  covered  by  the  policy,  and,  furthermore,  that  it  ap- 
pears that  in  the  computation  it  must  have  been  allowed  in  full. 
It  seems  to  be  conceded  by  counsel  for  the  plaintiffs  that  this 
was  a  claim  for  attorney  and  other  fees,  etc.,  and  not  a  balance 
upon  sales;  and  we  think  the  evidence  shows  it.  It  does  not 
appear  that  it  was  not  included  in  the  verdict,  nor  is  its  allow- 
ance in  any  way  disputed  by  counsel.  It  is  true  that  the  court 
repeatedly  said  that  attorney's  fees  could  not  be  recovered,  and 
it  is  not  surprising  that  this  subject  should  have  been  over- 
looked as  to  other  items.  We  think,  however,  that  the  request 
should  have  been  given,  and  this  claim  withdrawn  from  the  jury. 
We  are  of  the  opinion  that  the  sale  of  the  Burrows  and  Mc- 
Kinstry  stock  by  the  sheriff  brought  this  claim  within  the  terms 
of  the  policy.  The  claim  against  Webb  was  clearly  so,  under 
the  execution,  returned  unsatisfied,  and  the  same  is  true  of  the 
Zabbets  claim,  upon  the  report  of  the  collection  agency  to  which 
it  was  sent.  As  there  is  reason  to  believe  that  the  McDonald 
claim  was  included  in  the  verdict,  we  feel  constrained  to  reverse 
the  judgment,  and  direct  a  new  trial,  unless  the  amount  of  said 


552  CREDIT  INDEMNITY  BONDS. 

claim  shall  be  remitted.    The  defendant  should  recover  costs  of 
this  court.    It  is  so  ordered.     The  other  justices  concurred. 

On  Motion  to  Modify. 
(April  27,  1897.) 

In  this  cause  the  defendant's  counsel  move  a  modification  of 
the  judgment,  counsel  for  the  plaintiffs  having  elected  to  remit 
the  sum  of  $140.32,  as  permitted  by  the  opinion  filed.  The 
motion  is  based  upon  the  claim  that,  after  deducting  the  sum 
of  $140.32,  the  judgment  is  still  greater  by  $107.18  than  it 
should  be.  The  original  brief  of  the  defendant  contains  a  com- 
putation purporting  to  show  that  plaintiff  sustained  losses  upon 
accounts  against  "rated  debtors"  of  $375.36,  and  unrated  debt- 
ors $500,  making  $875.36,  from  which  the  "initial  loss"  to  be 
Lome  by  plaintiffs,  of  $525,  should  be  deducted,  leaving,  with 
interest  added,  $380.13  as  the  total,  including  the  McDonald 
claim  of  $140.32,  which  being  deducted,  would  leave  $239.81  as 
the  limit  of  defendant's  liability.  It  is  admitted  that  the  ques- 
tion was  not  raised  by  an  exception,  but  it  is  urged  that,  inas- 
much as  error  was  found  upon  another  point,  the  court  should 
have  ordered  a  new  trial,  inasmuch  as  the  judgment  was  clearly 
excessive,  after  deducting  the  McDonald  account  of  $140.32. 
If  we  accept  the  theory  of  defendant's  counsel  upon  the  law,  we 
must  then  inquire  whether  the  evidence  in  the  case  supports  his 
claim  that  the  verdict  was  excessive. 

In  plaintiffs'  original  brief,  counsel  submit  a  table  which  he 
asserts  to  be  correct.  Whether  it  is  or  not  depends  on  the  ver- 
sion of  each  account  being  verified  by  the  undisputed  testimony. 
We  are  not  only  not  referred  to  the  pages  of  the  record  sustaining 
the  defendant's  contention  as  to  all  of  these  items,  but  the  brief 
does  not  advise  us  that  all  of  the  testimony  is  included  in  the 
bill  of  exceptions.  The  brief  filed  on  this  motion  is  open  to  the 
same  criticism.  It  gives  a  list  of  debtors  that  it  says  were  rated, 
and  states  that  the  others  were  unrated,  quoting  appellant's 
statement  of  the  case  in  the  former  brief  as  evidence  of  the  fact, 
and  stating  that  this  was  not  disputed  by  counsel  for  the  plain- 
tiffs. As  the  case  was  presented,  counsel  for  the  defendant  had 
no  occasion  to  dispute  the  accuracy  of  the  statement,  as  its  only 
importance  was  in  connection  with  an  assignment,  which  was  not 


SLOMAN   v.   MERCANTILE   ETC.   CO.  553 

based  upon  an  exception.  In  the  brief  filed  in  opposition  to  this 
motion,  it  is  disputed,  and  the  claim  made  that  a  number  of 
rated  debtors  are  classed  as  unrated  in  defendant's  table. 

It  is  a  general,  rule  that  error  will  not  be  presumed,  but 
must  be  made  to  appear.  The  only  error  clearly  shown  involved 
$140.32,  and  we  required  plaintiffs  to  remit  the  amount  or  sub- 
mit to  a  new  trial.  We  are  now  asked  to  grant  a  new  trial  upon 
the  statement  of  counsel  that  the  verdict  is  excessive.  If  this 
record  clearly  showed  that  items  were  included  in  the  verdict 
unjustly,  it  may  be  doubted  if  we  should  send  the  case  back 
for  a  new  trial,  if  error  was  not  assigned  upon  them,  inasmuch 
as  counsel  see  fit  to  remit  the  only  claims  upon  which  error  was 
assigned.  Still  less  would  we  be  justified  in  doing  so  where 
the  record  makes  it  uncertain  that  jthe  verdict  was  excessive.^  ^ 
It  is  the  practice  of  this  court  to  refrain  from  ordering  new 
trials  where  the  record  is  such  as  to  enable  it  to  eliminate  the 
errors,  and  render  a  judgment  for  the  items  regarding  which  no 
error  is  shown.  One  of  the  most  pernicious  features  of  our 
jurisprudence  is  the  opportunity  afforded  to  defeated  litigants 
to  compel  their  opponents  to  follow  cases  up  and  down  through 
various  courts,  until  costs  become  the  principal  controversy,  and 
the  original  causes  of  action  merely  incidents,  and  citizens  hesi- 
tate to  commence  a  petty  justice  court  case,  lest  it  should  ulti- 
mately involve  them  in  financial  ruin.  Justice  is  practically 
denied  to  a  large  class  of  people.  While  it  seems  to  be  the 
policy  of  the  law  to  allow  this  sort  of  thing,  it  has  always  been 
the  practice  of  the  courts  to  put  an  end  to  litigation  as  soon  as 
the  circumstances  of  the  case  will  permit,  with  safety  to  the 
interests  involved.  The  presumption  is,  as  it  should  be,  that 
justice  was  done  in  the  circuit  court;  and,  the  contrary  not 
being  shown,  we  see  no  occasion  to  compel  the  plaintiff  to  submit 
to  another  trial,  upon  a  suspicion  that  the  verdict  was  excessive. 
The  motion  is  therefore  denied.  The  other  justices  concurred. 


554  CREDIT   INDEMNITY  BONDS. 

HOGG  v.  AMEEICAN  CREDIT  INDEMNITY  CO.     1898. ' 
172  Mass.  127;  51  N.  E.  Rep.  517. 

HOLMES,  J.  This  is  an  action  upon  a  bond  of  indemnity, 
within  certain  limits,  against  loss  resulting  from  insolvency  of 
debtors,  as  afterwards  defined,  ' '  on  total  gross  sales  .  .  . 
amounting  to  $120,000  or  less;  said  sales  .  .  .  to  be  made 
between  the  15th  day  of  June,  1896,  and  the  14th  day  of  June, 
1897,  both  days  inclusive."  The  bond  was  "to  expire  on  the 
14th  day  of  June,  1897."  By  a  rider  attached  to  the  bond 
"losses  occurring  after  payment  of  premium,  on  sales  and  ship-  \ 
ments  made  from  the  1st  day  of  April,  1896,  to  the  15th  day  of 
June,  1896,  may  be  proven  under  this  bond,"  etc.  The  two 
losses  in  respect  of  which  the  plaintiff  claims  indemnity  may 
be  assumed  to  have  been  upon  sales  made  within  the  time  limited 
by  the  instrument,  but  the  insolvency  causing  the  loss  in  each 
case  occurred  after  June  14,  1897.  The  defendant  demurs,  the 
principal  ground  of  demurrer  being  that  the  bond  does  not 
cover  losses  from  insolvency  occurring  after  the  term  of  the 
bond. 

As  we  are  of  opinion  that  the  defendant  must  prevail  upon 
this  ground,  we  do  not  go  into  details  which  are  unnecessary  for 
the  discussion  of  this  point.  We  fully  appreciate  the  great 
probability  that  a  business  man  reading  the  contract  without 
warning  might  understand  that  he  was  getting  the  protection 
which  the  plaintiff  claims.  "We  appreciate  the  small  worth  or 
worthlessness  of  the  bond  for  sales  made  during  the  last  part 
of  the  term  covered,  when  we  consider  the  definition  which  it 
gives  for  the  term  "insolvency  of  debtors,"  as  used  in  the  bond. 
If  we  could  see  a  reasonable  doubt  as  to  the  meaning  of  the 
instrument,  we  should  give  the  plaintiff  the  benefit  of  it.  But 
whatever  doubt  may  be  left  by  the  words,  "to  expire  on  the 
14th  day  of  June,  1897,"  seems  to  us  removed  by  the  language 
of  three  conditions,  all  of  which  lead  to  the  same  result.  By  the 
fourth  condition,  "notification  of  claims  must  be  delivered  to 
this  company  .  .  .  within  ten  days  after  the  indemnified 
shall  have  had  information  of  the  insolvency  of  any  debtor,  and 
must  be  received  at  the  central  office  of  the  company  at  St.  Louis, 
Mo.,  during  the  term  of  this  bond;  otherwise  such  claims  shall 
be  barred."  This  is  perfectly  explicit,  and  cannot  be  reconciled 


STROUSE  v.  AMERICAN  ETC.  CO.  555 

•with  the  plaintiff's  construction  except  by  arbitrarily  assuming 
that  construction  to  be  correct.  The  plaintiff  says  that  it  must 
be  limited  to  cases  where  the  conventional  insolvency  occurs 
during  the  term  of  the  bond.  Of  course  it  must,  as  it  could  not 
be  complied  with  in  any  other.  But  the  conclusion  is  not  that 
there  are  other  cases  for  which  the  bond  makes  no  provision  at 
all,  but  that  this  requirement,  universal  in  form,  is  universal  in 
fact,  and  covers  all  the  cases  to  which  the  bond  applies.  So,  by 
condition  12-C:  "A  final  statement  of  all  claims  which  have 
been  filed  in  accordance  with  condition  No.  4  shall  be  made. 
.  .  .  Such  final  statement  must  be  received  at  said  office  with- 
in 30  days  after  the  expiration  of  this  bond;  otherwise  all 
claims  hereunder  shall  be  forever  barred.  The  adjustment  of 
claims  shall  be  had  within  sixty  days  after  receipt  of  such  final 
statement  by  the  company,  and  the  amount  then  ascertained  to 
be  due  shall  at  once  become  payable. ' '  This  plainly  provides  for 
the  winding  up  of  all  claims  upon  the  bond.  Finally,  by  the 
eighth  condition,  "in  case  this  bond  is  renewed,  .  .  .  loss 
on  sales  covered,  .  .  .  resulting  after  said  date  of  expiration, 
upon  shipments  made  during  the  term  of  this  bond,  may  be 
proven  under  and  subject  also  to  the  terms  and  conditions  of 
such  renewal."  Then  follows  a  similar  provision  in  case  this 
bond  is  a  renewal.  This  contemplates  cases  like  the  present, 
and  contemplates  and  encourages  renewals  as  the  means  by 
which  bondholders  could  get  the  benefit  of  continuous  insurance. 
Unless  that  means  is  resorted  to,  there  is  no  protection  for  losses 
"resulting  after  said  date  of  expiration  upon  shipments  made 
during  the  term  of  this  bond." 

Judgment  affirmed. 


STROUSE  v.  AMERICAN  CREDIT  INDEMNITY  CO.    1900. 
91  Md.  244;  46  Atl  Rep.  328. 

Argued  before  McSnERRY,  C.  J.,  and  PAGE,  PEARCE,  BOTD, 
BRISCOE,  and  SCHMUCKER,  JJ. 

MCSHERRY,  C.  J.  The  record  in  this  case  is  quite  voluminous. 
There  are  seven  bills  of  exception, — six  signed  at  the  request 
of  the  defendant,  and  one  at  the  instance  of  the  plaintiffs.  The 
plaintiffs  offered  five  prayers,  four  of  which  were  rejected.  The 


556  CREDIT   INDEMNITY  BONDS 

defendants  presented  sixty-nine  prayers,  three  of  which  were 
granted.  The  court  gave  six  instructions  drawn  by  the  plaintiffs 
in  accordance  with  the  trial  court's  views.  There  are  fourteen 
special  exceptions  to  these  instructions,  and  there  are  twenty- 
five  motions  to  strike  out  evidence  admitted  subject  to  exception. 
It  will  be  simply  impossible  to  treat  separately  each  of  these 
one  hundred  and  twenty-six  questions,  and  we  must  accordingly 
content  ourselves  with  a  general  discussion  of  the  controlling 
legal  principles  applicable  to  the  whole  case,  and  then  reduce 
to  appropriate  groups  these  numerous  points,  and  in  that  way 
dispose  of  them. 

The  suit  was  instituted  by  Strouse  &  Bro.  against  the  Ameri- 
can Credit  Indemnity  Company  of  New  York  upon  a  bond  of 
indemnity.  The  American  Credit  Indemnity  Company  is  a 
company  which,  for  a  stipulated  premium,  guaranties  a  creditor 
to  a  specified  amount  against  losses  resulting  from  the  insolvency 
of  his  debtors.  It  furnishes  a  species  of  insurance.  The  bond 
which  it  issues  is  coupled  with  many  conditions.  On  the  5th 
day  of  June,  1893,  this  company,  in  consideration  of  a  written 
and  printed  application,  which  was  made  part  of  the  contract 
of  indemnity,  and  upon  the  payment  of  $580,  and  in  further 
consideration  of  the  acceptance  of  its  terms  and  conditions  em- 
bodied in  the  bond,  bargained  and  sold  to  Strouse  &  Bro.  a  bond 
of  indemnity  guarantying  them  against  loss  to  the  extent  of 
and  not  exceeding  $20,000,  resulting  from  the  insolvency  of 
debtors,  over  and  above  a  net  loss  of  $7,500,  first  to  be  borne 
by  the  indemnified,  on  total  gross  sales  and  deliveries  of  goods, 
wares,  and  merchandise  amounting  to  $1,600,000,  and  made  be- 
tween June  1,  1893,  and  May  31,  1894,  to  firms,  corporations, 
or  individuals  actually  engaged  in  commercial  and  mercantile 
pursuits  in  the  United  States.  Most  of  the  conditions  consist 
of  descriptions  of  what  are  provable  debts,  and  of  directions  as 
to  the  mode  of  proving  them.  Some  of  these  must  be  stated, 
because  upon  their  construction  much  of  the  controversy  de- 
pends. The  indemnity  company  is  not  liable  for  any  debts 
unless  the  debtor  has  a  certain  rating  in  Dun  &  Co.  's  Mercantile 
Agency  Book,  and  its  liability  is  limited,  as  respects  any  one 
insolvent  debtor,  to  35  per  cent,  of  the  lowest  amount  of  the 
capital  rating  given  such  debtor  by  that  agency,  and  no  account 
against  any  one  insolvent  debtor  can  be  proved  for  more  than 
$10,000.  Proof  of  loss  must  be  furnished  within  20  days  after^ 


STROUSE  v.  AMERICAN  ETC.  CO.  557 

knowledge  of  the  insolvency  of  any  debtor  shall  have  been  re- 
ceived by  the  indemnified,  and  final  proof  of  loss  must  be  for- 
warded within  20  days  after  the  expiration  of  the  bond,  and 
the  amount  due  by  the  company  must  be  adjusted,  and  is  made 
payable,  within  60  days  after  the.,  receipt  of  the  final  proof  of 
loss.  Both  the  preliminary  and  the  final  proofs  of  loss  are  re- 
quired to  be  made  on  blanks  provided  by  the  company.  This 
scheme  of  indemnity  includes  two  classes  of  losses, — the  one, 
an  initial  loss,  which  must  be  borne  by  the  indemnified;  the 
ether,  a  loss  in  excess  of  the  initial  loss,  which  must  be  borne 
by  the  indemnitor.  Both  kinds  of  losses  are  such  as  result 
from  the  insolvency  of  debtors  who  owe  the  indemnified. 

Obviously,  the  inquiries  which  first  suggest  themselves  are 
these:  What  is  meant  by  the  term  "insolvency,"  as  used  in  the 
body  of  the  bond  ?  "Which  are  the  losses  that  belong  to  the  two 
classes,  respectively?  What  is  the  period  of  time  at  which  the 
initial  loss  must  be  ascertained?  as  upon  the  location  of  that 
time  the  extent  of  the  liability  of  the  indemnitor  in  a  large 
measure  depends. 

It  is  insisted  by  the  company  that  the  term  "insolvency"  is 
limited  and  defined  by  conditions  lla  and  lib,  indorsed  upon 
the  bond.  These  clauses  are  as  follows:  "(lla)  General  as- 
signments of  or  attachments  against  insolvent  debtors,  the  ab- 
sconding of  the  debtors,  or  executions  returned  nulla  bona,  shall 
constitute  insolvency. "  "(lib)  The  appointment  of  a  receiver, 
a  'sell-out/  or  the  death  of  a  debtor  does  not  establish  insolven- 
cy, but  the  indemnified  may  prove  such  claim  during  the  term 
of  this  bond  or  renewal  thereof,  provided  legal  proof  shall  be 
given  establishing  the  insolvency  of  the  debtor."  These  bonds 
of  indemnity  and  certificates  are  contracts  confined  to  the  busi- 
ness affairs  of  merchants,  and  relate  exclusively  to  the  insolven- 
cy of  merchants.  Naturally,  then,  it  must  follow  that  the  in- 
solvency against  which  they  afford  indemnity  is  "insolvency" 
as  understood  by  merchants  and  as  defined  in  bankrupt  and 
insolvent  laws  relating  to  merchants  and  mercantile  transactions, 
unless  a  contrary  and  different  purpose  is  clearly  and  unequiv- 
ocally manifested  by  some  term  of  the  contract.  On  the  face 
of  the  bond,  protection  against  loss  "resulting  from  the  insolven- 
cy of  debtors"  is  afforded.  The  insolvency  designated  is  the 
usual  legally  defined  "insolvency,"  which  is  an  inability  of  the 
debtor  to  pay  his  debts  as  they  fall  due  in  the  ordinary  course 


558  CREDIT   INDEMNITY  BONDS. 

of  business,  and  this  is  dependent  neither  upon  a  formal  adjudi- 
cation, nor  on  an  actual  insufficiency  of  assets  to  meet  liabilities. 
Castleberg  v.  Wheeler,  68  Md.  266,  12  Atl.  3.  As  a  defeasance 
clause  limiting  the  liability  of  the  indemnitor  must  be  clearly 
expressed  and  strictly  construed  (Indemnity  Co.  v.  Cassard,  83 
Md.  272,  34  Atl.  703),  conditions  lla  and  lib  cannot  be  held 
to  narrow  the  meaning  of  the  term  "insolvency"  as  used  in  the 
body  of  the  instrument.  "General  assignments  of,  or  attach- 
ments against,  insolvent  debtors  .  .  .  shall  constitute  in- 
solvency." "The  absconding  of  debtors,  or  executions  returned 
nulla  ~bona,  shall  constitute  insolvency."  Obviously,  this  means 
that  these  things  shall  constitute  evidence  of  insolvency.  It  is 
not  every  general  assignment,  or  every  attachment,  that  is  de- 
clared to  constitute  insolvency;  but  such  an  assignment  made 
by,  or  an  attachment  issued  against,  an  insolvent  debtor.  But 
who  is  an  "insolvent  debtor"?  Unless  you  reason  in  a  vicious 
circle,  the  answer  must  be  one  who  is  unable  to  meet  his  obliga- 
tions as  they  fall  due  in  the  ordinary  course  of  business.  An 
execution  returned  nulla  bona  cannot  constitute  insolvency.  The 
return  is  the  act  of  an  officer,  and  not  of  the  party,  and  no  act 
.of  a  third  person  can  constitute  a  debtor's  insolvency.  Insolv- 
ency is  a  status.  Brown  v.  Smart,  69  Md.  332,  14  Atl.  468,  17 
Atl.  1101,  affirmed  in  145  U.  S.  457,  12  Sup.  Ct.  958,  36  L.  Ed. 
773.  The  return  on  an  execution  may  be  evidence  of  that  status, 
but  is  not  the  status  itself.  These  four  things  named  in  clause 
lla  do  not  create  the  status  or  condition  of  insolvency;  they 
are  simply  results  which  flow  from  the  antecedent,  pre-existing 
insolvency.  They  are  therefore  evidence  of  the  thing  from 
which  they  proceed ;  they  are  not  the  thing  itself.  Section  lib 
makes  this  demonstrably  clear.  The  appointment  of  a  receiver, 
a  sell-out,  etc.,  does  not  establish — that  is,  does  not  prove — 
insolvency;  but  "legal  proof"  may  be  given  establishing  the 
insolvency  of  the  debtor;  that  is,  establishing  his  inability  to 
pay  his  debts  as  they  fall  due  in  the  ordinary  course  of  busi- 
ness. Now,  if  nothing  but  the  things  named  in  lla  constituted 
insolvency,  there  could  be  no  "legal  proof"  of  insolvency,  under 
lib,  because  there  could  be  no  insolvency  to  be  proved  unless 
there  was  a  general  assignment,  an  attachment,  an  absconding, 
or  a  return  of  nulla  bona.  A  thing  which  in  its  very  nature 
cannot  constitute  insolvency,  though  it  may  constitute  evidence 
of  insolvency,  cannot,  by  being  called  insolvency,  be  other  than 


STROUSB  v.  AMERICAN  ETC.  CO.  559 

it  intrinsically  is,  namely,  a  means  of  proving  the  existence  of 
insolvency.  This  must  be  so  unless  the  thing  to  be  proved  is 
identical  with  the  thing  that  proves  it, — unless  insolvency  as  a 
fact,  and  the  evidence  which  proves  that  it  is  a  fact,  are  one 
and  the  same  thing.  But  the  two  are  manifestly  different.  In 
American  Credit  Indemnity  Co.  v.  Carrollton  Furniture  Mfg. 
Co.,  36  C.  C.  A.  671,  95  Fed.  114,  there  was  a  suit  against  this 
same  defendant  on  a  bond  issued  in  1895.  In  bonds  issued  by 
it  after  1893,  clause  Ha  was  materially  modified.  Insolvency 
was  limited  and  defined  by  the  modified  clause,  thus  indicating 
that  the  defendant  did  not  itself  consider  that  the  precise  clause 
now  before  us  imposed  a  limitation  as  it  stood  prior  to  the 
change. 

One  of  the  difficulties  with  respect  to  the  ascertainment  of 
what  losses  are  to  be  included  in  the  initial  loss  of  $7,500  is 
alleged  to  arise  out  of  condition  12a,  which  is  in  these  words: 
"To  simplify  adjustment  and  to  avoid  disputes,  it  is  agreed 
that  such  sum  of  gross  loss  shall  be  the  limit  to  be  borne  by  the 
indemnified,  as  less  25  per  cent,  will  equal  the  agreed  amount 
of  annual  net  loss ;  all  claims  mating  up  such  said  sum  of  gross 
loss  to  remain  the  property  of  the  indemnified,  the  company 
relinquishing  its  claims  except  as  hereinbefore  provided."  The 
face  of  the  bond  having  limited  the  liability  of  the  indemnitor 
to  losses  in  excess  of  a  net  loss  which  the  indemnified  was  re- 
quired to  sustain  in  the  first  instance,  it  obviously  became  neces- 
sary to  prescribe  some  method  by  which  the  net  loss  should  be 
ascertained.  The  very  term  "net  loss"  implies  a  resultant, 
remaining  loss  after  credits  or  collections  are  to  be  deducted. 
But  what  credits  or  collections  are  to  be  deducted?  It  might  in 
many,  if  not  in  most,  cases  be  impossible  to  estimate  in  advance 
of  their  actual  receipt  what  these  credits  or  collections  would 
aggregate,  and  yet,  until  ascertained  or  estimated,  a  net  loss 
could  not  be  determined ;  and  thu»  there  would  be  a  wide  field 
for  controversy  left  open,  perhaps  long  after  the  period  for 
adjustment  had  passed.  To  preclude  just  such  controversies, 
this  clause  12a,  which  fixes  by  agreement  an  amount  that  the 
parties  stipulate  shall  be  the  equivalent  of  the  net  loss,  and 
shall  be  considered  the  indemnified 's  initial  loss,  was  inserted. 
It  was  not  possible  to  express  the  amount  in  dollars  and  cents, 
because  the  net  loss  of  $7,500  was  fixed  at  15/32  of  1  per  cent, 
upon  a  basis  of  sales  amounting  to  $1,600,000,  and  was  to  increase, 


560  CREDIT   INDEMNITY  BONDS. 

under  the  provisions  of  clause  5,  in  the  same  ratio  if  the  sales 
exceeded  the  basis  just  named.  An  equation  was  substituted 
for  the  specified  net  loss,  and  this  was  done  avowedly  to  avoid 
disputes  and  to  simplify  adjustments ;  and  this  equivalent  state- 
ment simply  declares  that  a  gross  loss  which,  after  25  per  cent, 
of  it  shall  be  deducted  from  it,  will  equal  the  net  loss,  shall  be 
the  measure  of  the  initial  loss.  In  this  case  it  is  the  sum  of 
$10,000,  because  the  sum  of  $10,000,  less  25  per  cent,  of  $10,000, 
or  $2,500,  is  equal  to  '$7,500.  All  sums  collected  on  the  debts 
forming  this  gross  loss  are  to  be  retained  by  the  indemnified, 
and  go  to  reduce  the  amount  of  the  initial  loss,  and  all  sums 
collected  on  the  debts  which  make  up  the  liability  of  the  in- 
demnitor  belong  to  the  latter,  and  diminish  the  total  of  its  loss. 
But  at  what  period  of  time  is  the  adjustment  of  the  gross 
initial  loss,  and  therefore  the  ascertainment  of  the  indemnity 
company's  proportion  of  the  whole  loss,  to  be  determined?  Is 
it  when  and  as  each  loss  occurs,  or  is  it  only  when  the  bond 
expires?  The  answer  to  these  questions  will  settle  another  issue 
upon  which  the  parties  differ  most  radically. 

On  the  part  of  the  plaintiffs  it  is  insisted  that  the  initial  gross 
loss  of  $10,000  is  to  be  determined  as  of  the  dates  of  the  failures 
which  first  occur,  and  that  the  sums  due  at  the  date  of  failure 
are  alone  to  be  reckoned,  without  abatement  on  account  of  pay- 
ments subsequently  made ;  while  the  company  contends  that  the 
time  for  computing  this  gross  loss  is  the  time  when  the  liability 
under  the  bond  is  to  be  adjusted, — that  is,  as  of  the  date  of 
the  expiration  of  its  term, — and  that  the  sums  then  due  are  the 
amounts  to  be  considered.  There  are  two  proofs  of  loss  required 
to  be  submitted, — one,  under  clause  4,  within  20  days  after 
knowledge  of  the  insolvency  of  any  debtor  has  been  received 
by  the  indemnified ;  the  other,  a  final  proof  of  loss  under  clause 
"c,"  within  20  days  after  the  expiration  of  the  bond.  It  is 
declared  in  clause  "c"  that  "the  amount  due  by  this  company 
under  final  proof  of  loss  shall  be  adjusted  and  paid  within  sixty 
days  after  receipt  by  the  company  of  such  final  proof  of  loss. ' ' 
The  amount  due  by  the  company  is  the  amount  ascertained 
under  the  final  proof  of  loss.  That  amount  is  dependent  on 
the  amount  of  the  initial  gross  loss  sustained.  If  the  initial 
gross  loss  sustained  is  less  than  the  initial  gross  loss  named  in 
the  bond,  then  there  is  no  loss  in  excess  of  the  initial  gross  loss, 
and  consequently  no  loss  for  which  the  company  is  liable.  So 


STROUSE  v.  AMERICAN  ETC.  CO.  561 

the  company's  liability  can  only  be  ascertained  when  the  initial 
gross  loss  has  been  reached,  and,  as  the  company's  liability  is 
referable  to  the  final  proof  of  loss,  necessarily  the  ascertainment 
of  the  initial  gross  loss  which  fixes  that  of  the  company  must 
also  be  referable  to  the  same  period.  This  is  made  so  clear  by 
the  learned  judge  who  heard  the  case  below  that  we  quote  from 
his  opinion,  as  follows:  "In  the  preliminary  proof,  the  whole 
amount  due  on  any  claim  at  the  time  of  failure  is  to  be  stated; 
in  the  final  proof,  which  covers  all  claim,  the  indemnified  is  re- 
quired, both  as  to  claims  which  go  to  make  up  the  initial  gross 
loss,  and  those  which  make  up  the  loss  which  the  company  must 
bear,  to  state  again  the  whole  original  indebtedness,  and  also 
all  amounts  paid  since  the  date  of  failure  on  each  claim.  The 
requirements  of  proof  apply  to  each  class  of  claims.  See  Jaeckel 
v.  Indemnity  Co.  (Sup.),  54  N.  Y.  Supp.  505.  It  is  conceded 
that  the  liability  of  the  company  on  the  excess  over  the  initial 
loss  borne  by  the  indemnified  is  reduced  by  payments  made  be- 
tween the  date  of  insolvency  and  the  expiration  of  the  bond, 
and  I  think  the  same  rule  should  apply  in  ascertaining  the 
initial  gross  loss.  If  not,  why  is  the  indemnified  required  to 
make  a  statement  in  his  final  proof  of  all  payments  made  on 
claims  which  go  to  make  up  his  initial  gross  loss  ?  The  condition 
relied  on  by  plaintiffs,  which  provides  that  the  claims  'making 
up'  the  initial  gross  loss  shall  remain  the  property  of  the  in- 
demnified, does  not  help  us  to  dispose  of  the  point  now  consid- 
ered. The  question  still  remains,  what  claims  make  up  the  initial 
gross  loss?  The  loss  must  be  made  up  of  claims  as  they  exist 
when  it  is  made  up,  and  so  we  come  back  to  the  question,  when 
is  it  to  be  made  up?  If  the  plaintiffs  be  right,  such  a  case  as 
this  may  easily  be  imagined.  For  instance,  early  in  the  year 
some  debtor  fails  owing  the  indemnified  party  $10,000.  By  the 
end  of  the  year  the  whole  debt  has  been  paid  off.  In  such  a 
case,  under  the  construction  of  the  plaintiffs,  the  indemnified 
would  have  the  right  to  hold  the  company  for  losses  in  excess 
of  this  $10,000,  without  having  himself  borne  an  initial  loss  of 
one  dollar.  The  case  put  for  illustration  is  not  altogether  imag- 
inary, nor  at  all  impossible.  The  very  facts  suggested  hypothet- 
ically  have  actually  occurred  in  the  case  of  one  claim  involved 
in  this  suit.  The  whole  debt  due  by  McMurray  at  the  time  of 
his  failure  was  paid  off  before  the  bond  expired,  and  yet  the 
plaintiffs  claim  that  the  full  amount  of  this  debt  should  be 


562  CREDIT   INDEMNITY  BONDS. 

counted  in  making  up  their  initial  loss,  although  nothing  has 
been  lost  on  it.  I  cannot  accept  a  construction  that  would  lead 
to  such  a  result,  nor  can  I  see  how  condition  12a  operates  to  fix 
one  time  for  computing  the  initial  gross  loss,  when  condition 
12c  provided  another  for  adjusting  the  company's  liability.  The 
time  for  computing  the  initial  gross  loss  is,  in  my  opinion,  the 
time  when  the  liability  under  the  bond  is  to  be  adjusted — that 
is,  as  of  the  date  of  the  expiration  of  its  term, — and  therefore 
all  these  intermediate  payments  must  be  deducted." 

As  the  company's  liability  does  not  begin  until  the  initial 
gross  loss  has  been  sustained,  it  would  seem  to  follow  necessarily 
that  this  gross  loss,  which  is  the  first  to  be  borne,  should  be  made 
up  by  those  losses  that  first  occur;  and  it  equally  follows  that 
those  payments  which  the  indemnified  is  entitled  to  retain  in 
reduction  of  his  initial  gross  loss  are  those  which  are  made 
after  the  time  for  adjustment,  upon  claims  included  in  the  initial 
loss,  while  the  payments  which  the  company  is  entitled  to  receive 
in  reduction  of  its  loss  are  those  made  after  the  same  period  on 
debts  which,  form  the  basis  of  its  liability. 

But  this  does  not  settle  by  any  means  all  points  of  difference 
between  the  parties.  There  is  a  stipulation  affixed  to  the  bond, 
and  that  stipulation,  which  is  called  a  ' '  rider, ' '  has  caused  much 
of  the  controversy.  The  rider  is  in  these  words:  "In  considera- 
tion of  the  lapsing  of  certificate  No.  1,204  in  the  United  States 
Credit  System  Company  of  Newark,  N.  J.,  it  is  agreed  that  any 
losses  which  occur  subsequent  to  the  expiration  of  said  certifi- 
cate, and  which  would  be  provable  under  a  renewal  of  said  cer- 
tificate, may  be  proved  hereunder,  in  accordance  with  the  terms 
and  conditions  of  this  bond,  provided  that  no  claim  under  ex- 
tension at  the  time  of  payment  of  the  premium  shall  be  in- 
cluded in  the  protection  under  this  bond."  Under  certificate 
No.  1,204,  the  United  States  Credit  System  Company  agreed  to 
pay  Strouse  &  Bro.  a  sum  not  exceeding  $20,000  in  excess  of 
$6,250  on  the  total  gross  sales  and  shipments  of  merchandise 
made  between  June  1,  1892,  and  May  31,  1893,  as  said  Strouse 
&  Bro.  may  actually  lose  on  such  shipments  on  legally  ascer- 
tained insolvent  debtors  whose  insolvency  occurred  after  the 
payment  of  the  guaranty  fee,  and  who  had  a  certain  credit 
rating  in  E.  Gr.  Dun  &  Co.'s  books,  and  whose  debts  did  not 
exceed  $5,000  for  any  one  debtor.  It  was  further  stipulated 
that  12V2  per  cent,  of  the  amount  due,  and  all  amounts  procured 


STROUSE  v.  AMERICAN  ETC.  CO.  563 

and  procurable,  shall  be  deducted  from  all  claims.  By  a  further 
provision  in  the  certificate,  it  was  stipulated  that  the  $6,250 
mentioned  in  the  certificate  was  the  amount  of  the  initial  loss 
first  to  be  borne  by  the  indemnified  before  the  liability  of  the 
credit  system  company  would  arise.  Now,  the  question  is,  does 
the  rider  carry  into  the  bond  all  the  terms  and  conditions  of 
certificate  No.  1,204? 

,  It  will  be  observed  that  by  the  explicit  words  of  the  rider  any 
losses  which  occur  subsequent  to  the  expiration  of  the  certifi- 
cate,— that  is,  subsequent  to  May  31,  1893, — and  which  would 
be  provable  under  a  renewal  of  the  certificate,  may  be  proved 
under  the  bond,  in  accordance  with  the  terms  and  conditions  of 
the  bond.  The  certificate  covered  sales  and  shipments  from 
June  1,  1892,  to  May  31,  1893;  the  bond  covered  sales  and 
shipments  from  June  1,  1893,  to  May  31,  1894.  The  two  to- 
gether embraced  the  sales  and  shipments  for  two  years.  If 
the  terms  and  conditions  of  the  certificate  are  not  carried  into 
the  bond,  then  the  company  would  be  liable  for  the  losses  of  two 
years,  though  it  could  not  insist  upon  an  allowance  of  an  initial 
loss  for  more  than  one  year.  The  learned  judge  below  decided 
that  the  initial  loss  of  $10,000  fixed  by  clause  12a  of  the  bond 
was  the  only  initial  loss  which  could  be  charged  to  the  indemni- 
fied, and  that  the  initial  loss  of  $6,250  prescribed  by  the  certifi- 
cate, and  applicable  to  sales  made  during  the  year  preceding  the 
date  of  the  bond,  but  under  the  protection  of  the  certificate,  was 
not  imported  by  the  rider  into  the  bond  at  all.  In  effect,  there- 
fore, the  $10,000  gross  initial  loss,  which  was,  according  to  clause 
12a,  "the  agreed  amount  of  annual  net  loss,"  becomes,  not  the 
equivalent  of  an  annual  net  loss,  but  the  gross  loss  for  two  years. 
Is  this  the  meaning  of  the  rider?  "Losses  which  occur  subse- 
quently to  the  expiration  of  said  certificate,  and  which  would  be 
provable  under  a  renewal  of  said  certificate,  may  be  proved 
hereunder,  in  accordance  with  the  terms  and  conditions  of  this 
bond."  This  clause  relates  to  two  subjects:  First,  the  thing  to 
be  proved;  second,  the  mode  of  proving  it.  Now,  the  thing  to 
be  proved  is  not  merely  a  loss,  but  a  particular  loss ;  that  is,  a 
loss  which  would  be  a  loss  provable  under  a  renewal  of  certifi- 
cate No.  1,204.  Then  to  certificate  No.  1,204  resort  must  be  had 
to  ascertain  what  losses  occurring  subsequent  to  its  expiration 
would  be  provable  under  a  renewal  of  it.  A  renewal  of  it  would 
be  simply  an  extension  of  it,  with  all  of  its  terms  and  conditions. 


564  CREDIT   INDEMNITY  BONDS. 

Upon  turning  to  it,  this  provision  will  be  found:  "Covered 
losses  occurring  after  this  certificate  expires  on  shipments  made 
during  its  term  are  provable  under  the  renewal  hereof  as  if  the 
goods  had  been  shipped  thereunder."  If  the  goods  had  been 
.shipped  under  the  renewal  of  certificate  No.  1,204,  that  is,  under 
a  duplicate  of  it  for  another  year,  the  thing  to  be  proved — the 
loss — would  have  been  a  loss  in  excess  of  the  initial  loss  of 
$6,250,  and  in  excess  of  12%  per  cent,  of  the  claim,  and  in 
further  excess  of  all  amounts  procured  and  procurable  from  the 
debtor,  because  that  residue,  and  that  residue  only,  would  have 
been  the  covered  loss.  The  provable  debt  is  the  thing  to  be 
proved,  and,  under  the  terms  and  conditions  of  the  certificate, 
only  such  debts  as  were  in  excess  of  the  initial  loss  and  of  the 
abatements  just  named  were  losses  which  the  credit  system  com- 
pany undertook  and  stipulated  to  be  liable  for.  There  was  a 
further  restriction  to  the  effect  that  no  single  indebtedness  could 
be  proved  for  a  larger  amount  than  $5,000.  All  these  conditions 
and  restrictions  were  descriptive  of  the  thing  that  could  be 
proved.  In  the  third  instruction  given  by  the  court,  all  of  these 
conditions,  save  the  one  respecting  an  initial  loss,  are  conceded 
to  be  imported  into  the  definition  of  losses  covered  by  the  rider. 
The  initial  loss  condition  is  just  as  much  a  part  of  the  description 
of  the  loss,  and  therefore  of  the  debt  to  be  proved,  as  is  either 
the  12%  per  cent,  deduction  or  the  limit  of  $5,000  upon  a  single 
claim.  The  terms  and  conditions  of  the  certificate,  and  not 
part  of  them,  must  determine  what  are  provable  losses  under 
the  rider,  precisely  as  the  terms  and  conditions  of  the  bond  must 
fix  what  are  provable  losses  under  the  bond.  American  Credit 
Indemnity  Co.  v.  Athens  Woolen  Mills,  34  C.  C.  A.  161,  92 
Fed.  581. 

Now,  the  mode  of  proving  the  thing  to  be  proved  under  the 
rider  is  a  mode  which  is  in  accordance  with  the  terms  and  condi- 
tions of  the  bond;  that  is,  in  accordance  with  the  mode  pre- 
scribed by  the  bond  for  the  proving  of  a  loss  under  the  bond. 
It  is  obvious  that  there  is  a  wide  difference  between  what  loss 
can  be  proved  and  the  mode  of  proving  that  which  may  be 
proved:  and,  while  the  mode  of  proving  the  loss  must  be  in 
accordance  with  the  terms  and  conditions  prescribed  by  the  bond 
for  proving  a  loss  under  the  bond,  the  loss  to  be  proved  under 
the  certificate  is  such  a  loss  only  as  the  certificate  defines.  We 
think,  then,  the  learned  judge  below  was  in  error  when  he  ruled 


STROUSE  v.  AMERICAN  ETC.  CO.  565 

that  the  renewal  losses  when  brought  under  the  bond  are  on 
the  footing  of  other  losses,  and  are  not  subject  to  any  other 
initial  loss  than  the  one  provided  for  by  the  bond. 

The  declaration  contains  two  counts.  The  first  is  framed  on 
the  indemnity  bond,  and  the  second  on  the  rider.  A  large  mass 
of  evidence  was  adduced,  most  of  which  was  admitted  subject 
to  exception,  and  at  the  close  of  the  case  twenty-five  motions 
were  made  for  the  exclusion  of  much  of  it.  These,  save  two, 
were  overruled.  The  first  and  second  bills  of  exceptions  relate 
to  rulings  on  the  admissibility  of  evidence.  The  third  was  taken 
to  the  disallowance  of  the  motions  to  exclude  evidence  already 
admitted.  As  just  stated,  there  were  twenty-five  of  these  mo- 
tions. One,  the  first,  was  withdrawn;  the  second  was  granted; 
the  thirteenth,  fourteenth,  and  twenty-second  have  been  aban- 
doned ;  and  the  remaining  twenty  are  before  us.  The  fourth 
exception  assails  the  granting  of  the  plaintiffs'  fifth  prayer. 
The  fifth  exception  relates  to  the  defendant's  prayers.  The 
court  granted  the  defendant's  fourteenth,  forty-first,  and  forty- 
first  "a"  prayers,  and  rejected  all  the  others,  numbered  from 
1  to  4,  both  inclusive,  and  from  6  to  44,  both  inclusive,  as  well 
as  26,  numbered  5a  to  5t,  and  also  12a,  13a,  15a,  20a,  and  21a. 
The  fifth  exception  relates  to  the  defendant's  pnayers.  The 
sixth  exception  contains  the  court's  6  instructions  and  the  14 
special  objections  to  them.  The  remaining  bill  of  exceptions 
was  reserved  by  the  plaintiffs,  and  was  taken  to  the  refusal  of 
the  court  to  grant  the  plaintiffs '  first  four  prayers ;  to  the  grant- 
ing of  the  defendant 's  fourteenth,  forty-first,  and  forty-first ' '  a  " 
instructions;  to  the  granting  of  the  defendant's  second  motion 
excluding  evidence ;  and,  finally,  to  the  granting  of  the  instruc- 
tions given  by  the  court.  The  bill  of  particulars,  specifying  the 
items  of  the  plaintiffs'  demands,  sets  forth  18  instances  of  in- 
solvency on  the  part  of  that  number  of  debtors  who  owed  the 
plaintiffs  various  sums  alleged  to  be  within  the  protection  of 
either  the  bond  or  the  rider,  and  the  numerous  special  exceptions, 
motions,  and  prayers  relate  to  these  different  claims.  We  will 
classify  these  exceptions,  motions,  and  prayers,  and  thus  con- 
dense them  considerably.  The  trial  resulted  in  a  verdict  and 
judgment  for  the  plaintiffs,  and  both  sides  have  appealed. 

The  third  and  fifth  bills  of  exceptions  will  first  be  taken  up. 
Treating  them  together,  the  following  contentions  are  presented : 

First.  It  is  insisted  that  there  is  no  evidence  legally  sufficient 


566  CREDIT   INDEMNITY  BONDS. 

to  show  that  the  debtors  named  in  the  bill  of  particulars  were 
insolvent,  within  the  meaning  of  the  bond  or  certificate  No. 
1,204.  This  is  raised  by  the  6th,  7th,  llth,  12th,  16th,  17th, 
18th,  19th,  21st  and  23d  motions  and;  by  the  prayers  numbered 
8  and  5b  to  5t. 

Second.  It  is  claimed  that  there  is  no  evidence  legally  suffi- 
cient to  show  sales  and  deliveries  of  goods,  wares,  and  merchan- 
dise by  Strouse  &  Bro.  to  the  various  debtors  named  in  the  bill 
of  particulars,  and  especially  that  there  is  no  such  evidence  of 
sales  and  deliveries  to  Goldsmith  &  Co.  and  Marks,  Goldsmith 
&  Co.  These  points  are  raised  by  the  3d,  4th,  and  24th  motions, 
and  by  the  2d,  3d,  4th,  8th,  13th,  17th,  27th,  28th,  29th,  30th, 
31st  to  38th,  40th,  42d,  and  44th  prayers. 

Third.  It  is  contended  that  the  plaintiffs  had  no  authority  to 
compromise  any  of  the  claims  included  in  the  bill  of  particulars. 
The  9th,  10th,  llth,  12th,  12th  "a,"  15th,  and  15th  "a"  prayers 
present  this  contention. 

Fourth.  It  is  asserted  that  the  plaintiffs  failed  to  prove  that 
Goldsmith  &  Co.  and  Marks,  Goldsmith  &  Co.,  debtors  of  the. 
plaintiffs,  were  rated  in  Dun  &  Co.'s  Mercantile  Agency  Book 
as  required  by  the  bond  and  by  certificate  No.  1,204.  This  is 
raised  by  motions  5  and  5a,  and  by  the  20th,  20th  "a,"  21st, 
and  21st  "a"  prayers. 

Fifth.  It  is  alleged  that  there  is  no  evidence  of  the  amount 
of  loss  sustained  by  the  plaintiffs  on  the  Goldsmith  claims.  This 
is  involved  in  motion  9,  and  in  the  18th  and  25th  prayers. 

Sixth.  It  is  maintained  that  there  is  no  evidence  that  Lannon, 
one  of  the  debtors,  died  insolvent.  The  13th  and  13th  "a" 
prayers  were  drawn  to  present  this  point. 

Seventh.  It  is  affirmed  that  sales  made  prior  to  June  1,  1893, 
would  not  have  been  provable  under  a  renewal  of  certificate  No. 
1,204,  and  this  is  the  effect  of  the  seventh  prayer. 

Eighth.  It  is  declared  that  promissory  notes  were  taken  in 
payment  from  Goldsmith  &  Co.  Prayer  9  presents  this  proposi- 
tion, while  prayer  22  proceeds  upon  the  hypothesis  that  the 
accounts  due  by  Goldsmith  &  Co.  and  by  Marks,  Goldsmith  & 
Co.  were  under  extension  when  the  premiums  on  the  indemnity 
bond  were  paid,  and  prayer  43  relates  to  an  alleged  increase  in 
the  length  of  the  credit  given  these  same  firms. 

Ninth.  Prayer  25  sought  to  exclude  all  losses  on  sales  made 
prior  to  June  1,  1892,  "but  it  was  rejected  because  in  point  of 


STROUSE  v.  AMERICAN  ETC.  CO.  567 

fact  no  sales  made  before  that  date  were  included  in  any  of  the 
claims  mentioned  in  the  bill  of  particulars.  The  transactions 
to  which  the  prayer  had  relation  were  not  sales,  for  the  sales 
were  negotiated  and  concluded  later,  and  clearly  fell  within  the 
protection  of  the  rider.  Nothing  more  need  be  said  concerning 
this  prayer. 

First,  then,  as  to  the  question  of  insolvency.  What  has  been 
said  in  an  earlier  part  of  this  opinion  on  that  subject  need  not 
be  repeated.  Clauses  Ha  and  lib,  indorsed  on  the  bond,  are 
not  intended,  as  has  been  pointed  out,  to  constitute  a  definition 
of  "insolvency,"  or  to  restrict  insolvency  to  the  acts  therein 
named.  As  there  was  ample  evidence  tending  to  show  that  the 
debtors  designated  in  the  prayers  and  motions  grouped  under 
this  division  were  unable  to  pay  their  debts  as  they  fell  due  in 
the  ordinary  course  of  business,  there  was  no  error  in  overruling 
those  motions  and  in  rejecting  those  prayers. 

Second,  with  regard  to  sales  and  deliveries.  It  was  shown  by 
the  salesman  who  took  the  orders  for  goods  from  the  various 
debtors  that  the  orders  were  taken,  and  were  then  forwarded  to 
the  plaintiffs.  These  orders  first  went  to  the  stock  department, 
then  to  the  shipping  department,  where  they  were  entered  in  the 
order  book,  and  then  they  went  to  the  shipping  clerk, 
who  shipped  the  goods,  and  charged  them  up  in  the 
shipping  book.  It  was  shown  by  the  shipping  clerk  that 
he  saw  the  goods  which  are  charged  to  these  debtors  prop- 
erly packed;  that  he  superintended  the  men  who  nailed  and 
strapped  the  cases;  that  he  saw  these  cases  marked,  made  out 
the  bills  of  lading,  and  mailed  them  to  the  customers,  with  the 
invoices  attached  thereto.  He  further  testified  that  he  made  the 
entries  in  the  sales  book  at  the  same  time  he  made  the  ship- 
ments; that  after  the  goods  were  packed  and  marked  he  issued 
the  bill  of  lading,  and  had  the  drayman  take  it,  and  bring  it 
back  signed ;  and  that  the  same  evening  the  signed  bill  of  lading, 
with  the  invoice  pinned  to  it,  was  mailed  by  himself.  These 
bills  of  lading,  with  the  invoices  attached,  were  mailed  in  en- 
velopes bearing  the  monogram  and  residence  of  the  plaintiffs, 
and,  though  other  letters  thus  enclosed  had  come  back  through 
the  mails  to  the  house,  none  of  the  bills  of  lading  and  invoices 
thus  mailed  to  the  debtors  named  in  the  bill  of  particulars  were 
ever  returned.  It  was  further  shown  that  some  of  the  debtors 
made  payments  on  account  of  these  very  shipments,  while  others 


568  CREDIT   INDEMNITY  BONDS. 

sent  back  small  articles  included  in  the  goods  shipped  to  them. 
All  shipments  were  made  by  common  carriers.  These  circum- 
stances were  competent  evidence  to  go  to  the  jury,  as  they  tended 
to  prove  sales,  shipments,  deliveries,  and  acceptance.  Whart. 
Ev.  §  1140.  ' '  Should  the  contract  of  purchase  be  silent  as  to 
the  person  or  mode  by  which  the  goods  are  to  be  sent,  a  delivery 
by  the  vendor  to  a  common  carrier,  in  the  usual  and  ordinary 
course  of  business,  transfers  the  property  to  the  vendee."  Ma- 
gruder  v.  Gage,  33  Md.  344.  In  addition  to  what  has  just  been 
said,  there  must  be  a  more  particular  reference  to  the  sales  made 
to  Goldsmith  &  Co.  and  to  Marks,  Goldsmith  &  Co.  Louis  Gold- 
smith lived  in  Baltimore.  He  carried  on  business  in  Spokane, 
Butte,  and  Salt  Lake  as  Goldsmith  &  Co.,  and,  with  Isidor  Marks 
as  a  co-partner,  he  was  engaged  in  business  at  Ogden.  This 
firm  was  known  as  Marks,  Goldsmith  &  Co.  All  the  goods  pur- 
chased from  the  plaintiffs  for  these  four  houses  were  bought  by 
Louis  Goldsmith  in  Baltimore,  and,  while  charged  to  Goldsmith 
&  Co.,  the  house  for  which  they  were  designed  was  designated 
on  the  ledger.  Marks  was  not  a  partner  in  the  Spokane,  Butte, 
or  Salt  Lake  business.  When  Goldsmith  &  Co.  and  Marks,  Gold- 
smith &  Co.  failed,  Marks  executed  an  assignment  in  the  firm 
name;  and  the  twenty-third  motion  of  the  defendant  is  to  the 
effect  that  this  was  not  a  valid  assignment,  because  only  signed 
by  one  member  of  the  firm.  This  objection  becomes  immaterial, 
since  it  is  founded  on  the  assumption  that  insolvency  can  only 
be  proved  by  a  general  assignment,  or  in  one  of  the  other  three 
ways  named  in  clause  lla;  whereas,  we  hold  the  contrary,  and 
have  already  ruled  that  there  was  sufficient  evidence  of  insolven- 
cy to  go  to  the  jury  independently  of  any  assignment.  While 
there  is  evidence  tending  to  show  that  Marks,  Goldsmith  &  Co. 
was  a  distinct  concern  from  Goldsmith  &  Co.,  there  is  also  evi- 
dence from  which  it  might  be  inferred  that  they  were  one  and 
the  same  debtor.  But  it  is  not  the  province  of  the  court  to 
decide  which  contention  is  correct.  That  was  the  matter  for  the 
jury.  Much  of  the  argument  in  this  court  was  intended  to  con- 
vince us  of  the  identity  of  these  two  concerns,  and  it  was  insisted 
that  as  Louis  Goldsmith  was  in  fact  the  real  debtor,  and  owed 
the  whole  amount  charged  in  separate  sums  in  the  bill  of  par- 
ticulars against  Goldsmith  &  Co.  and  Marks,  Goldsmith  &  Co., 
the  excess  of  the  total  indebtedness  over  the  limit  of  $5,000  al- 
lowed for  any  one  debtor,  under  certificate  No.  1,204,  could  not 


STROUSE  v.  AMERICAN  ETC.  CO.  569 

be  proved  at  all.  But  it  is  obvious  that  the  question  of  fact 
as  to  whether  the  two  concerns  were  identical  or  were  independ- 
ent is  not  a  question  for  us  to  decide,  nor  was  it  one  for  the 
court  below  to  determine ;  for  it  was  exclusively  an  issue  of  fact 
for  the  jury.  Upon  appropriate  hypotheses,  these  conflicting 
views  could  have  been  referred  to  the  jury,  but  it  is  not  the 
province  of  the  court  to  say  which  of  two  contradictory  conten- 
tions of  fact  is  true.  There  was  therefore  no  error  committed 
in  any  of  the  rulings  on  the  prayers  and  motions  grouped  under 
the  second  head. 

Third.  There  is  nothing  in  the  bond  or  certificate  to  show  that 
the  plaintiffs  had  no  authority  to  compromise  any  claim,  and 
there  is  not  the  slightest  evidence  to  indicate  that  any  injury 
was  done  the  defendant  by  any  settlement  which  was  made.  The 
result  of  the  compromise  was  a  diminution  of  the  defendant's 
liability,  and,  without  presenting  any  evidence  to  indicate  that 
jtnore  money  would  have  or  could  have  been  secured  from  the 
debtor  than  was  obtained  by  the  compromise,  it  cannot  insist 
that  it  is  relieved  of  responsibility  merely  because  some  claims 
were  adjusted  by  compromise.  There  was  no  error  in  rejecting 
the  prayers  relating  to  this  subject. 

Fourth.  There  was  evidence  sufficient  to  go  to  the  jury  on  the 
question  of  the  commercial  rating  of  Goldsmith  &  Co. 
and  Marks,  Goldsmith  &  Co.  The  record  shows  that  in 
the  R.  G.  Dun  &  Co.  Mercantile  Agency  Book,  under 
the  head  "Baltimore,"  Goldsmith  &  Co.  were  rated  "02," 
one  of  the  ratings  within  both  the  bond  and  the  certificate.  Un- 
der the  headings  "Spokane,"  "Butte,"  and  "Salt  Lake,"  Gold- 
smith &  Co.  appear,  and  beneath  their  firm  name  is  entered, ' '  See 
Baltimore,  Md."  Under  the  heading  "Ogden,"  is  found  Marks, 
Goldsmith  &  Co.,  and  beneath  the  name  is  the  entry,  "See  Balti- 
more, Md."  These  entries,  "See  Baltimore,  Md.,"  were  in  fact 
repetitions  of  the  rating  given  Goldsmith  &  Co.  under  the  Balti- 
more heading.  The  motions  and  prayers  raising  this  objection 
were  properly  denied. 

Fifth.  There  was  sufficient  evidence  to  go  to  the  jury  upon 
the  question  of  the  amount  of  the  loss  sustained  by  the  failure  of 
the  Goldsmith  concerns,  and  it  would  have  been  error  to  grant 
the  motion  or  the  prayers  which  sought  to  withdraw  that  ques- 
tion from  the  jury. 

Sixth.    There  was  evidence  that  Lannon  died  July  17,  1893, 


570  CREDIT   INDEMNITY  BONDS. 

and  that  his  estate  was  settled  by  the  Nashville  Trust  Company  as 
administrator,  and  that  the  estate  paid  52.16  1-3  per  cent,  divi- 
dend. 

Seventh.  By  the  explicit  terms  of  the  rider,  losses  arising  out 
of  sales  which  were  made  prior  to  June  1,  1893,  and  which  would 
have  been  provable  under  a  renewal  of  certificate  No.  1,204,  were 
provable  under  the  rider,  and  there  were  just  such  claims  in- 
cluded in  the  bill  of  particulars  and  established  by  the  evidence. 

Eighth.  There  is  absolutely  no  evidence  that  notes  were  taken 
by  Strouse  &  Bro.  in  payment  of  the  indebtedness  of  Goldsmith 
&  Co.  or  of  Marks,  Goldsmith  &  Co.  When  Goldsmith  went  to 
make  his  purchases  for  the  spring  of  1893,  he  owed  the  plaintiffs 
for  goods  previously  shipped  to  the  four  Goldsmith  establish- 
ments over  $18,000  on  open  accounts  which  would  be  due  on 
June  1,  1893.  The  plaintiffs,  wishing  the  business  of  each  season 
to  be  closed,  required  Goldsmith  to  give  notes  maturing  in  the 
fall  of  1893  for  the  1892  indebtedness.  This  was  simply  chang- 
ing the  evidence  of  the  indebtedness  from  an  open  account  to 
promissory  notes,  and  was  not  an  ' '  extension, ' '  within  the  mean- 
ing of  that  term  as  used  in  the  provision  of  certificate  No.  1,204, 
which  declares  that  "losses  on  claims  under  extension  at  time  of 
payment  of  the  guaranty  fee  .  .  .  shall-  not  be  included 
in  the  calculation  of  losses."  Nor  was  this  transaction  an  ex- 
tension under  a  similar  provision  in  the  rider.  As  used  in  the 
certificate  and  in  the  rider,  "extension"  signifies  "an  agreement 
made  between  a  debtor  and  his  creditors,  by  which  the  latter,  in 
order  to  enable  the  former,  embarrassed  in  his  circumstances,  to 
retrieve  his  standing,  agree  to  wait  for  a  definite  length  of  time 
after  their  several  claims  should  become  due  and  payable  before 
they  will  demand  payment."  Bouv.  Law  Diet.  503,  "Exten- 
sion." Eequiring  notes  to  be  given  as  evidence  of  the  antecedent 
debt,  and  making  the  notes  payable  at  a  later  date  than  the  open 
account  would  have  become  due,  did  not  constitute  an  extension, 
and  did  not  transgress  any  provision  of  the  bond. 

These  observations  dispose  of  all  the  questions  raised  by  the 
motions  to  exclude  evidence  and  by  the  rejected  prayers  of  the 
defendant,  and,  as  we  find  no  errors  in  the  action  taken  by  the 
court  in  regard  to  these  motions  and  prayers,  its  rulings  in  the 
third  and  fifth  bills  of  exception  are  affirmed. 

The  first  and  second  exceptions  relate  to  the  admissibility  of 
evidence.  The  first  is  not  very  clear;  that  is,  the  precise  ruling 


STROUSE  v.  AMERICAN  ETC.  CO.  571 

excepted  to  is  not  made  apparent,  and  was  not  alluded  to  in  the 
argument.  The  second  challenges  the  ruling  which  allowed  an 
examination  into  matters  of  account  appearing  on  the  ledger,  the 
same  subject  having  been  previously  gone  into  on  cross-examina- 
tion by  the  defendant.  The  plaintiffs  clearly  had  a  right  to  in- 
terrogate the  witness  on  the  matter  thus  developed  by  the  de- 
fendant. These  rulings  are  affirmed. 

The  fourth  exception  concerns  the  granting  of  the  plaintiffs' 
fifth  prayer.  This  prayer  denned  the  right  of  the  plaintiffs  to 
make  compromises  with  their  debtors.  What  has  been  said  in 
disposing  of  the  defendant's  prayers  Nos.  9,  10,  11,  12,  12a,  15, 
and  15a  is  sufficient  to  show  that  the  ruling  complained  of  in  this 
exception  is  correct. 

The  sixth  exception  contains  the  court's  instructions,  and  the 
defendant's  fourteen. special  objections  to  them.  The  first  and 
second  instructions  would  be  free  from  error  if  they  related  sole- 
ly to  the  bond,  and  did  not  include  losses  recoverable  under  the 
rider.  In  so  far  as  they  fix  the  initial  gross  loss  under  the  bond 
at  $10,000,  and  prescribe  how  and  at  what  time  the  gross  initial 
loss  is  to  be  ascertained,  they  are  right ;  but  the  third  instruction 
clearly  indicates  that  the  first  and  second  were  designed  also  to 
establish  the  $10,000  initial  loss  as  the  only  initial  loss  to  be  borne 
by  the  plaintiffs.  Beading  the  three  together,  as  they  must  be 
read  because  the  third  is,  in  terms,  made  explanatory  of  the  first 
and  second,  an  inaccurate  rule  is  laid  down,  and  the  inaccuracy 
consists  in  the  exclusion  of  an  initial  loss  under  certificate  No. 
1,204,  which,  as  we  have  already  pointed  out,  is  brought  into  the 
bond  by  the  rider.  Had  the  third  instruction  further  limited  the 
defendant's  liability  on  losses  occurring  on  sales  made  between 
June  1,  1892,  and  May  31,  1893,  by  imposing  on  the  plaintiffs 
the  initial  loss  of  $6,250  prescribed  in  the  certificate,  all  three  of 
these  instructions  would  have  been  sound.  The  fourth  instruc- 
tion, while  right  if  standing  alone,  becomes  faulty  by  its  connec- 
tion with  the  second.  The  seventh  paragraph  of  the  fifth  instruc- 
tion imports  into  the  fifth  instruction  the  erroneous  third  instruc- 
tion, and  thus  vitiates  the  whole.  The  first,  second,  third,  fourth, 
fifth,  sixth  and  eighth  paragraphs  of  the  fifth  instruction  are  un- 
doubtedly correct.  As  the  ultimate  result  of  these  five  instruc- 
tions, taken  as  a  series,  is  to  enlarge  the  liability  of  the  defendant 
by  excluding  the  initial  loss  stipulated  for  by  certificate  No. 
1,204,  they  ought  not  to  have  been  granted.  If  amended  to  in- 


572  CREDIT  INDEMNITY  BONDS. 

elude  in  an  appropriate  way  that  loss,  they  would  fairly  present 
the  law  of  the  case.  The  sixth  instruction,  which  is  the  converse 
of  the  defendant's  twenty-second  prayer,  declares  that  there  was 
no  evidence  that  the  debts  due  by  Goldsmith  &  Co.  were  under 
extension  at  the  time  the  premium  on  the  bond  was  paid.  This 
we  hold  to  be  right.  As  we  have  decided  that  the  first,  second, 
third,  fourth  and  fifth  instructions  in  the  sixth  bill  of  exceptions 
ought  to  have  been  rejected  for  a  reason  not  named  in  the  special 
objections,  we  need  not  consider  those  objections  at  all.  None  of 
them  has  relation  to  the  sixth  instruction. 

The  remaining  exception  is  the  one  taken  by  the  plaintiffs  to 
the  refusal  of  the  court  to  grant  their  first  four  prayers ;  to  the 
granting  of  the  defendant's  fourteenth,  forty-first  and  forty-first 
* '  a  "  prayers ;  its  second  motion  or  the  exclusion  of  evidence ;  and 
to  the  granting  of  the  instructions  given  by  the  court.  The  plaint- 
iff s'  first  prayer  was  wrong,  because  it  declared  that  the  initial 
loss  of  $10,000  must  be  made  up  at  the  time  of  the  insolvencies, 
instead  of  at  the  date  of  the  expiration  of  the  term  of  the  bond. 
This  has  already  been  considered.  The  first,  second,  third  and 
fourth  prayers  were  all  founded  on  the  theory  that  the  total  in- 
itial loss  under  the  bond  and  under  the  certificate  was  confined  to 
$10,000.  Besides  this,  the  second,  third  and  fourth  proceeded 
upon  the  erroneous  hypothesis  of  the  first  as  to  the  time  of  com- 
puting the  initial  loss. 

The  granting  of  the  defendant's  fourteenth,  forty-first,  and 
forty-first  "a"  prayers  furnishes  no  ground  for  complaint.  The 
fourteenth  instructed  the  jury  that  there  was  no  evidence  of  any 
loss  sustained  by  the  plaintiffs  upon  sales  made  to  McMurry  & 
Bro.  The  whole  debt  due  by  McMurry  when  he  failed  was  paid 
off  before  the  bond  expired.  There  was  consequently  no  loss  at 
all.  The  two  other  prayers  told  the  jury  that  the  plaintiffs  could 
not  recover  any  amount  in  excess  of  that  claimed  in  the  bill  of 
particulars.  This  is  certainly  sound.  The  court,  on  motion, 
struck  out  the  testimony  of  Rosenthal  to  the  effect  that  when 
goods  were  shipped  they  were  at  the  risk  of  the  buyer.  That  was 
a  question  of  law,  which  depended  on  the  circumstances  attend- 
ing the  shipments.  The  witness  could  have  stated  his  knowledge 
as  to  these  circumstances,  but  not  his  deduction  from  them. 

In  obedience  to  the  requirements  of  section  19,  art.  5,  Code,  we 
have  passed  upon  all  the  questions  presented,  save  and  except  the 
14  special  exceptions  to  the  court's  instructions,  and  those  have 


QUIGLEY  v.  ST.  PAUL  TITLE  ETC.  CO.  573 

not  been  considered  because,  upon  the  instructions  being  declared 
erroneous,  these  exceptions  became  mere  moot  questions.  Be- 
cause of  the  errors  we  have  pointed  out  in  the  rulings  set  forth 
in  the  sixth  bill  of  exception,  the  judgment  must  be  reversed,  and 
a  new  trial  is  awarded.  Judgment  reversed,  and  new  trial 
awarded,  the  costs  above  and  below  to  await  and  follow  the  final 
result. 


CHAPTER  XXII. 

TITLE  INDEMNITY  BONDS. 

a.  Title  Indemnity  Bonds  are  in  the  nature  of  insurance  policies 
indemnifying  against  losses  arising  from  defective  titles  to 
real  estate. 

QUIGLEY  v.   ST.   PAUL   TITLE   INSURANCE   &   TEUST 

CO.  1895. 

60  Minn.  275;  62  N.  W.  Rep.  287. 

Appeal  from  district  court,  Ramsey  county;  Hascal  R.  Brill, 
Judge. 

CANTY,  J.  On  the  1st  day  of  July,  1889,  one  Amelia  Kings- 
ley  was  the  owner  of  a  certain  city  lot  in  St.  Paul,  and  was 
then  erecting  a  building  thereon,  which  was  not  completed  for 
several  months  thereafter.  She  procured  a  loan  of  $2,200  of 
plaintiffs'  intestate,  John  0.  Quigley,  and  mortgaged  the  lot 
to  him  to'  secure  the  repayment  of  the  same.  The  mortgage  is 
dated  on  that  day,  but  was  not  recorded  until  October  22,  1889. 
The  business  of  the  defendant  corporation  is  that  of  insuring 
titles,  and  on  September  20,  1889,  a  written  application  was 
made  to  it  by  Quigley 's  agent  to  insure  the  title  of  this  lot  to 
the  extent  of  the  mortgage  interest  of  Quigley  therein.  The 
application  was  accepted,  and  a  policy  of  insurance  dated 
October  22,  1889,  issued  to  Quigley  accordingly.  Thereafter 
Quigley  foreclosed  the  mortgage,  and  bid  the  lot  in  at  the 
foreclosure  sale.  The  time  to  redeem  expired  on  February  26, 
1892.  No  redemption  was  made,  and  Quigley  became  the 
owner  of  the  lot.  But  between  October  10,  1889,  and  April  10, 


574  TITLE    INDEMNITY    BONDS. 

1890,  work  and  labor  of  the  value  of  $95  was  performed  for 
Mrs.  Kingsley  in  painting  the  building  as  a  part  of  the  erection 
of  the  same.  A  mechanic's  lien  was  filed  therefor.  Suit  was 
brought  to.  foreclose  the  same,  in  which  Quigley  was  made  a 
party,  and  a  judgment  of  foreclosure  was  entered,  adjudging 
the  mechanic's  lien  paramount  to.  the  lien  of  the  mortgage. 
The  lot  was  sold  to  satisfy  the  judgment,  and  the  time  to  re- 
deem from  that  sale  expired  on  August  18,  1892,  and  no  re- 
demption was  made.  This  divested  the  title  of  Quigley  which 
he  had  acquired  under  his  foreclosure  sale  nearly  six  months 
before.  The  defendant  was  duly  notified  by  Quigley  of  the 
commencement  of  the  suit,  and  undertook  and  conducted  the 
defense  of  the  same  in  the  name  of  Quigley  under  the  provisions 
of  the  policy.  The  complaint  in  this  action  alleges  that  Quig- 
ley was  in  his  lifetime  a  resident  of  New  York,  and  that  neither 
he  nor  these  plaintiffs  had  any  knowledge  or  notice  of  the 
entry  of  said  judgment,  nor  of  the  sale  under  it,  until  after 
the  time  to  redeem  from  that  sale  had  expired.  The  action 
is  brought  to  recover  from  defendant  as  damages  the  value 
of  the  lot, — which  is  alleged  to  be  $3,200, — on  the  ground  that 
it  was  the  duty  of  defendant  to  indemnify  and  save  harmless 
Quigley  and  these  plaintiffs  from  this  mechanic's  lien,  and 
defendant  was  negligent  in  failing  to  satisfy  the  lien,  and 
in  failing  to  pay  the  sum  necessary  to  redeem  from  the  sale 
under  the  judgment  before  the  time  to  redeem  from  that  sale 
expired,  and  in  failing  to  notify  plaintiffs  that  it  did  not 
intend  to  redeem,  and  thereby  give  plaintiffs  an  opportunity  to 
do  so.  The  case  was  tried  by  the  court  below  without  a  jury. 
Judgment  was  ordered  for  plaintiffs  for  $2,200  and  interest, 
and  each  party  made  a  motion  for  a  new  trial,  and  appeals 
from  an  order  denying  such  motion. 

1.  "We  will  first  consider  the  appeal  of  the  defendant.  Said 
application  contains  the  following  provisions:  "It  is  agreed 
that  the  following  statements  are  correct  and  true  to  the  best 
of  the  applicant's  knowledge  and  belief,  and  that  any  false 
statements  or  any  suppression  of  material  information  shall 
avoid  the  said  policy.  *  *  *  Present  value  of  buildings? 
$2,800,  when  completed.  Are  there  any  incumbrances  on  the 
property;  any  mortgages,  judgments,  mechanics'  or  other  liens; 
*  any  pending  or  threatened  litigations,  any  of  which 
affect  any  part  of  the  above  property,  known  to  you  or  "rumor- 


QUIGLEY  v.  ST.  PAUL  TITLE  ETC.  CO.  575 

ed?     State  fully.     Nothing  except  mtges.  of  $500   and  $500, 
which  are  to  be  satisfied.    Are  any  of  said  incumbrances,  if 
any,   to  remain;   and  which  not?     Only  the   $2,200  now  in- 
sured."   At  the  time  the  application  for  the  insurance  was 
made,  no  part  of  the  labor  or  material  for  which  said  me- 
chanic's lien  was  filed  had  been  furnished,  but  other  labor  and 
material  had  been  furnished  in  doing  other  portions  of  the 
work  of  constructing  the  building,  and  of  the  amount  to  be 
paid  for  the  same  there  remained  unpaid  the  sum  of  $1,700, 
all  of  which  was  afterwards  paid  out  of  the  proceeds  of  said 
loan.     It  is  contended  by  defendant  that  the  amounts  due  on 
these  unpaid  claims  constituted  mechanics'  liens  on  this  lot; 
that  the  application  warranted  the  truth  of  the  above-quoted 
representations,  which  were  false;  and  that  the  falsity  of  the 
same  avoided  the  policy,  even  though  no  loss  or  prejudice  re- 
sulted to  defendant  by  reason  of  the  falsity  of  the  represen- 
tations.    In  answer  to  this,  we  will  say  that  it  appears  from 
the  recitals  in  the  policy  that  defendant  had  full  knowledge 
of  the  existence  of  these  unpaid  claims  for  labor  and  material 
when  it  issued  the  policy,  and  must  be  held  to  have  waived  the 
false  warranty  as  to  them,  under  the  rule  laid  down  in  Brand- 
up  v.  Insurance  Co.,  27  Minn.  393,  7  N.  W.  735,  and  Wilson  v. 
Insurance  Co.,  36  Minn.  112,  30  N.  W.  401.     By  the  terms  of 
the  policy  the  defendant  excepts  from  its  liability  the  defects 
and  liens  set  forth  in  Schedule  B  of  the  policy.    Among  the 
things  so  enumerated  in  Schedule  B  is,  "(4)  Provisions  of  an 
agreement  between  said  mortgagors  and  Joseph  M.  Lee, ' '  giving 
Lee  "a  lien  on  the  premises  for  such  sum  as  may  remain  unpaid 
upon  the  construction  of  the  building  on  the  premises,"  and 
stating  the  book  and  page  in  the  register's  office  where  this 
agreement  is  recorded.     This  agreement  was  introduced  in  evi- 
dence on  the  trial.     It  is  dated  October  8,  1889,  and  states  that 
$1,700  then  remained  due  and  unpaid  "on  account  of  the  con- 
struction of  said  house  and   appurtenances. ' '    By  its  terms, 
Mrs.  Kingsley  agrees  that  Lee  shall  have  a  lien  on  the  premises 
for  any  sums  which  he  may  advance  in  paying  this  claim. 
This  reference  in  the  policy  to  the  Lee  contract  makes  that 
contract  and  all  the  statements  contained  in  it  a  part  of  the 
policy,  and  by  issuing  the  policy  knowing  these  warranted  rep- 
resentations to  be  false,  the  defendant  waived  them,  and  cannot 
now  be  heard  to  say  that  it  intended  to  issue  and  deliver,,  not 


576  TITLE    INDEMNITY    BONDS. 

a  valid  policy,  but  a  worthless  piece  of  paper.     The  order  ap- 
pealed from  by  defendant  should  be  affirmed. 

2.  "We  will  next  consider  plaintiffs'  appeal.  It  appears  by 
the  bill  of  exceptions  that  on  the  trial  plaintiffs  offered  to  prove 
that  at  the  time  their  title  to  the  lot  was  divested  by  the  expi- 
ration of  redemption  on  the  mechanic's  lien  foreclosure,  the  lot 
was  worth  $3,200.  Defendant  admitted  that  at  that  time  the 
lot  was  worth  more  than  $2,200,  and  objected  to  the  offer  as 
incompetent  and  immaterial.  On  this  admission  the  court  sus- 
tained the  objection,  holding  that  by  the  terms  of  the  policy 
the  limit  of  defendant's  liability  was  $2,200,  and  this  ruling 
is  assigned  as  error.  We  are  of  the  opinion  that  this  assign- 
ment of  error  is  well  taken.  The  policy,  by  its  terms,  limits  the 
liability  of  the  defendant  for  loss  on  account  of  certain  kinds 
of  defects  and  incumbrances  to  $2,200.  But  this  limitation  on 
its  liability  does  not  apply  where  the  loss  is  caused  by  its  own 
negligence  in  the  performance  of  duties  which  it  assumes  to 
perform  under  the  contract.  The  following  are  all  the  parts  of 
the  policy  which  we  deem  material  on  the  question  now  under 
consideration:  The  defendant,  "in  consideration  of  the  sum 
of  $2,200  to  it  paid,  doth  hereby  covenant  that  it  will  for  the 
period  of  25  years  from  the  date  hereof  indemnify,  keep  harm- 
less, and  insure  John  0.  Quigley,  New  York,  the  mortgagee 
named  in  a  certain  mortgage  executed  by  Amelia  Kingsley,  * 
*  *  from  all  loss  or  .damage  not  exceeding  twenty-two  hun- 
dred dollars,  which  the  said  insured  shall,  during  said  period  of 
twenty-five  years,  sustain  by  reason  of  defects  in  the  present 
title  of  said  mortgagors  to  the  real  estate  or  interest  described 
in  Schedule  A,  hereto  annexed,  or  by  reason  of  liens  or  incum- 
brances affecting  the  same  at  the  date  hereof,  or  by  reason  of 
any  defect  apparent  of  record  in  the  execution  or  filing  for 
record  of  said  mortgage,  excepting  only  such  as  are  set  forth  in 
Schedule  B ;  subject  to  the  conditions  and  stipulations  herein- 
after contained,  and,  together  with  said  schedules,  made  a  part 
of  this  policy."  Attached  to  the  policy,  and  made  a  part  of 
the  same,  are,  among  others,  the  following  stipulations  and  con- 
ditions : 

"  (1.)  This  company  will,  at  its  own  cost  and  charge,  defend 
the  insured  in  all  actions  of  ejectment  or  other  proceedings 
founded  upon  a  claim  of  title  or  incumbrance  prior  in  date  to 
this  policy,  and  not  herein  and  in  Schedule  B  excepted;  re- 


QUIGLEY  v.  ST.  PAUL  TITLE  ETC.  CO.  577 

serving,  nevertheless,  the  option  of  settling,  the  claim,  or  of 
paying  the  amount  of  its  liability  at  that  time  under  this 
policy;  and  payment,  or  tender  of  payment,  of  such  amount 
shall  determine  all  liability  of  the  company  under  such  claim. 
In  case  any  such  action  or  proceeding  is  begun,  it  shall  be  the 
duty  of  the  insured  to  notify  the  company  thereof  in  writing, 
within  ten  days  after  service  of  the  summons  therein,  and 
secure  to  it  the  right  to  defend  the  action  or  proceeding,  and 
to  give  all  possible  assistance  therein;  but  such  defense  by  the 
company  shall  not  change  or  alter  the  rights  or  obligations  of 
any  of  the  parties  hereto.  If  such  notice  shall  not  be  so  given, 
and  such  right  to  defend  be  secured  to  the  company  in  such 
action  or  proceeding,  then  this  policy  shall  be  void." 

"(3)  As  long  as  the  interest  of  the  insured  in  said  real 
estate  consists  of  a  mortgagee's  interest  and  subject  to  redemp- 
tion, the  company  may,  at  its  option,  at  any  time,  if  it  shall 
deem  such  action  necessary  for  its  protection  under  this  policy, 
pay  the  amount  then  remaining  unpaid  on  said  mortgage,  and 
in  that  case  the  mortgagee  or  his  assigns  shall,  by  proper  instru- 
ment, assign  to  this  company  said  mortgage,  together  with  the 
indebtedness  secured  thereby,  or  the  proportion  thereof  remain- 
ing unpaid." 

"(5)  No  right  of  action  shall  accrue. under  this  policy  * 
*  *  until  the  insured  (unless  absolved  by  the  company)  has, 
at  the  company's  option,  either  assigned  or  conveyed,  or  in 
writing  agreed  on  demand  to  assign  and  convey,  to  the  com- 
pany, or  such  person  as  it  may  name,  all  the  right,  title,  and 
interest  of  the  insured  in  and  to  said  above-described  real  estate 
or  interest,  at  the  following  price,  viz.:  (a)  As  long  as  the  inter- 
est of  the  insured  shall  continue  to  be  a  mortgagee's  interest,  or 
still  subject  to  redemption,  the  price  to  be  paid  shall  be 
the  amount  then  remaining  unpaid  on  said  mortgage  indebted- 
ness, or  the  amount  necessary  to  permit  such  redemption,  (b) 
If  the  interest  of  the  insured  shall  by  foreclosure  and  the  ex- 
piration of  the  period  of  redemption  have  matured  into  an 
ownership  in  fee  simple,  the  price  to  be  paid,  unless  determined 
by  mutual  agreement,  shall  be  the  amount  bid  at  said  fore- 
closure sale,  with  interest  thereon  at  legal  rate  from  the  date  of 
such  foreclosure  sale,  together  with  any  and  all  subsequent 
expenditures  by  the  insured  for  improvements,  taxes,  or  as- 
sessments on  said  real  estate,  with  interest  at  the  legal  rate  on 
37 


578  TITLE    INDEMNITY    BONDS. 

each  of  such  expenditures  from  the  date  of  the  making  thereof, 
less  any  sum  or  sums  received  by  said  insured  from  any  partial 
redemption  or  sale  of  said  real  estate,  (c)  Any  payment 
under  this  policy,  whether  made  as  the  consideration  of  any 
such  assignment  or  conveyance  as  aforesaid  or  otherwise,  shall 
reduce  the  liability  of  the  company  hereunder  by  the  amount 
of  such  payment." 

"(7)  Claim  under  this  policy  having  been  settled,  the  com- 
pany shall  be  subrogated  to  all  rights  of  action  and  remedies 
for  recovery;  and  the  insured  hereby  assigns  and  warrants  to 
the  company  such  rights,  and  agrees  that  his  name  may  be  used 
in .  all  lawful  proceedings  therefor.  If  the  payment  does  not 
cover  the  loss  of  the  insured,  the  company  shall  be  interested  in 
such  rights  with  the  insured  in  the  proportion  of  the  amount 
paid  to  the  amount  of  the  loss  not  hereby  covered;  and  the 
insured  warrants  that  such  rights  of  subrogation  shall  vest  in 
the  company,  unaffected  by  any  act  of  the  insured." 

It  will  be  seen  by  an  examination  of  the  provisions  in  the 
body  of  the  policy,  above  quoted,  that  the  defendant  agreed  to 
indemnify,  save  harmless,  and  insure  Quigley  against  loss  from 
three  different  causes:  (1)  "Defects  in  the  present  title;" 
(2)  "liens  or  incumbrances  affecting  the  same  at  the  date 
hereof;"  (3)  "any  defect  apparent  of  record  in  the  execution 
or  filing  for  record  of  said  mortgage."  Its  liability  for  loss 
from  these  three  causes  is  expressly  limited  to  $2,200,  and  the 
insured  has  a  right  to  recover  that  amount  of  loss  arising  from 
any  or  all  of  these  three  causes  alone,  and  this  fairly  implies 
that,  if  his  loss  arises  from  some  other  cause  besides  these  three 
this  limitation  does  not  cover  it  also.  In  this  case,  it  is  claimed 
that  his  loss  does,  at  least  in  part,  arise  from  some  other  cause, 
to  wit,  that  of  the  negligence  of  defendant.  Under  said  section 
or  subdivision  1  of  the  stipulations  and  conditions  attached  to 
the  policy,  the  defendant  has  the  option  to  defend  the  suit,  or 
pay  the  claim  on  which  suit  is  brought,  or  pay  the  insured  the 
amount  of  its  liability  under  the  policy.  If  it  elects  to  defend 
the  suit,  it  must  be  held  to  do  so  for  its  own  benefit,  and  must 
exercise  reasonable  care;  if  it  fails  to  do  so,  it  is  liable  for  any 
loss  caused  by  such  failure,  and  the  limitation  above  quoted 
does  not  apply.  Neither  does  the  provision,  "but  such  defense 
by  the  company  shall  not  change  or  alter  the  rights  or  obliga- 
tions of  any  of  the  parties  hereto,"  contained  in  said 


QUIGLEY  v.  ST.  PAUL  TITLE  ETC.  CO.  579 

saction  1,  relieve  the  company  from  liability  for  its 
negligence,  but  it  also  implies  that  such  defense  will  be 
conducted  with  reasonable  care,  and  must  be  read  as  if  that 
condition  was  expressly  attached  to  it.  Even  if  the  claim  on 
which  the  suit  was  brought  was  one  against  which  defendant 
had  not  insured  the  title,  and  against  which  it  was  not  obliged 
to  defend,  still,  if  it  voluntarily  undertook  to  indemnify  the 
insured,  and  defend  the  suit  for  him,  it  would  be  obliged  to  use 
reasonable  care,  and  would  be  liable  for  its  negligence  or  mis- 
conduct by  reason  of  which  he  was  misled  and  injured.  It  may 
be  proper  here  to  remark  that  no  claim  is  made  that  the  lien 
in  question  is  not  covered  by  the  policy  of  insurance.  Neither 
is  it  claimed  that  subdivision  or  section  5  above  quoted  in  any 
manner  limits  the  amount  of  recovery,  and  we  cannot  see 
that  its  provisions  have  any  other  effect  than  that  of  creating 
a  condition  precedent  to  the  commencement  of  the  action.  It 
certainly  cannot  be  held  that  the  option  there  provided  for  must 
be  held  open  so  as  to  give  the  insurer  a  chance  to  speculate  on 
the  amount  of  the  verdict,  and  accept  the  option  afterwards  if 
more  favorable  to  him  than  the  verdict.  Neither  would  the 
prices  there  provided  for  be  in  any  sense  the  measure  of  dam- 
ages. We  are  of  the  opinion  that  it  was  error  to  exclude  the 
testimony  offered. 

The  court  also  excluded  the  affidavit  of  one  Stevens,  who  was 
an  officer  of  the  defendant  corporation,  and  who  was  acting 
within  the  apparent  scope  of  his  authority  when  he  made  the 
affidavit,  in  which  he  set  out  the  reasons  why  defendant  failed 
to  redeem  the  lot  from  the  mechanic's  lien  foreclosure  sale. 
The  evidence  was  competent  as  an  admission  tending  to  prove 
negligence  on  the  part  of  the  defendant,  and  it  should  have 
been  received.  This  disposes  of  the  case.  The  order  denying 
defendant's  motion  for  a  new  trial  is  affirmed,  and  the  order 
denying  plaintiffs'  motion  for  a  new  trial  is  reversed,  and  a 
new  trial  is  granted. 


580  TITLE    INDEMNITY    BONDS. 

BARTON  v.  WEST  JERSEY   TITLE   &  GUARANTY  CO. 

1899. 

64  N.  J.  L.  24;  44  Ail.  Rep.  871. 

Action  by  James  M.  Barton  against  the  West  Jersey  Title 
&  Guaranty  Company.  Demurrer  to  the  declaration  sustained. 

Argued  June  term,  1899,  before  MAGEE,  C.  J.,  and  VAN 
SYCKEL,  GARRISON  and  LIPPINCOTT,  JJ. 

MAGIE,  C.  J.  This  is  an  action  on  contract  in  the  nature  of 
an  action  on  covenant  upon  a  sealed  policy  of  insurance  of  the 
title  to  certain  lands  of  the  plaintiff.  The  declaration  sets  up 
the  contract  contained  in  the  policy,  but  as  the  pleader  has  an- 
nexed to  the  declaration  a  copy  of  the  policy,  and  referred  to 
it  so  that  it  has  become  part  of  the  record,  it  will  be  convenient 
to  consider  the  contract  itself,  rather  than  the  statements  of  the 
declaration  in  respect  to  it.  Defendant  has  interposed  a  de- 
murrer to  the  declaration,  and,  upon  demand,  has  served  plain- 
tiff with  various  specifications  of  the  causes  on  which  it  rests 
its  demurrer. 

It  is  not  deemed  necessary  to  consider  any  of  the  causes  ex- 
cept the  second,  which  asserts  that  the  declaration  does  not  set 
out  the  breach  of  the  covenant  declared  upon,  because  the 
declaration  in  that  respect  is  plainly  insufficient.  The  contract 
annexed  to  the  declaration  is  expressed,  so  far  as  the  matter 
now  under  consideration  is  concerned,  in  the  following  terms: 
"  This  policy  of  insurance  witnesseth  that  the  West  Jersey  Title 
&  Guaranty  Company  in  consideration  of  the  sum  of  ten  dol- 
lars to  it  paid  by  John  M.  Barton,  of  city  of  Philadelphia,  in 
the  state  of  Pennsylvania,  covenants  that  it  will  indemnify, 
keep  harmless,  and  insure  the  said  James  M.  Barton  * 
against  all  loss  or  damage,  not  exceeding  four  thousand  dollars, 
which  the  said  insured  shall  sustain  by  reason  of  defects  in  or 
unmarketability  of  the  title  of  the  insured  to  the  estate,  mort- 
gage, or  interest  described  in  Schedule  A,  hereto  annexed,  or 
against  all  liens  or  incumbrances  charging  the  same  at  the 
date  of  this  policy;  *  *  *  the  loss  and  amount  to  be 
ascertained  in  the  manner  provided  in  the  said  conditions,  and 
to  be  payable  upon  compliance  by  the  insured  with  the  stipula- 
tion of  such  conditions  and  not  otherwise. "  By  Schedule  A,  the 
interest  insured  is  described  as  an  estate  in  fee  simple,  and  the 


(I 


BARTON  v.  WEST  JERSEY  CO.  581' 

particular  tract  in  which  such  estate  is  insured  is  set  out  by 
meets  and  bounds,  and  by  reference  to  a  recorded  title  deed. 
Among  the  conditions  of  the  policy  is  the  following,  viz.  /'  No 
//claim  shall  arise  under  this  policy  unless  the  party  insured  has 
been  actually  evicted  under  an  adverse  title  insured  against.// 

The  first  contention  in  support  of  this  cause  of  demurrer  is 
that,  upon  the  contract  thus  set  out,  the  declaration,  if  intended 
as  the  declaration  in  this  case  clearly  is,  to  base  the  action  on 
a  breach  of  covenant  arising  from  the  eviction  of  the  insured 
from  the  insured  premises,  must  assert  an  eviction  under  a  par- 
amount title,  by  due  process  of  law.  The  notion  that  such  an 
eviction  was  essential  to  establish  a  cause  of  action  upon  a  cove- 
nant of  warranty  was  repudiated  in  this  court  in  Kellog  v. 
Platt,  33  N.  J.  Law,  328.  It  was  there  held,  in  conformity 
with  the  previous  decision  in  Carter  v.  Denman's  Ex'rs,  23  N. 
J.  Law,  260,  that  an  action  on  that  covenant  could  be  main- 
tained upon  a  disturbance  of  title  or  possession  by  a  paramount 
title  tantamount  to  eviction. 

But  it  is  contended,  with  no  little  force,  that  the  covenant 
in  this  policy  differs  from  a  covenant  of  warranty,  and  that 
the  doctrine  applied  to  the  latter  is  not  applicable  to  the  form- 
er. The  contention  is  put  on  the  express  exclusion  of  any  claim 
under  the  policy  unless  the  insured  has  been  actually  evicted 
under  an  adverse  title.  It  derives  its  force  from  a  comparison 
of  this  clause  of  the  paragraph  with  the  provision  of  condition 
7,  whereby  the  company  agrees,  at  its  own  cost  to  defend  the 
insured  in  any  action  of  ejectment  founded  on  a  claim  of  title 
insured  against,  and  requiring  the  insured  to  notify  the  com- 
pany of  the  action,  and  to  give  it  an  opportunity  to  defend  it. 
It  is  also  thereby  provided  that,  unless  the  insured  notifies  the 
company  within  five  days  after  the  service  of  the  writ  in  the 
action,  the  insurance  shall  be  void.  If  this  is  the  correct  con- 
struction of  the  contract  contained  in  the  policy,  the  declara- 
tion is  obviously  insufficient,  as  it  contains  no  assertion  of  an 
eviction  by  due  process  of  law. 

But  it  is  deemed  unnecessary  to  express  an  opinion  upon  the 
contract  in  that  respect.  Assuming  that  the  covenant  in  ques- 
tion would  be  broken  by  such  an  eviction  as  would  give  rise  to 
a  right  of  action  on  a  covenant  of  warranty,  viz.,  a  disturbance 
of  title  or  possession  by  paramount  title  equivalent  to  an  evic- 
tion, the  declaration  is  equally  deficient.  The  deficiency  occurs 


582  TITLE    INDEMNITY    BONDS. 

because  there  is  a  total  failure  to  aver  that  the  disturbance  and 
eviction  of  plaintiff  was  by  a  paramount  and  superior  title. 
The  assertion  of  the  declaration  is  that  the  West  Jersey  Sea  " 
Shore  Railroad  Company  claimed  a  lawful  right  and  title  to 
a  part  of  the  land  the  title  of  which  was  insured  by  defendant, 
and  that  said  company  entered  and  evicted  the  plaintiff  under 
an  adverse  title.     This  does  not  describe  an  entry  or  disturb- 
ance by  paramount  title,  and  so  the  breach  of  the  covenant 
sued  upon  is  not  disclosed  by  the  declaration.     The  defendant  - 
is  entitled  to  judgment  upon  this  demurrer. 


WHEELER  v.  REAL  ESTATE  TITLE  INS.  &  TRUST  CO. 

1894. 

160  Pa.  St.  408;  28  Ail.  Rep.  849. 

Appeal  from  court  of  common  pleas,  Philadelphia  county; 
Bregy,  Judge. 

MITCHELL,  J.  The  policy  was  upon  a  mortgage,  and  the 
covenant  in  it  was  to  indemnify  the  holder  against  ' '  all  loss 
*  *  *  by  reason  of  defects  or  unmarketableness  of  the 
title  to  the  estate  or  interest  insured,  *  *  *  or  because  of 
liens  or  incumbrances  charging  the  same  at  the  date  of  this 
policy."  A  building  was  then  in  process  of  erection  on  the 
mortgaged  premises,  and  is  so  set  forth  in  the  policy.  While 
it  was  in  progress,  and  for  six  months  afterwards,  the  possi- 
bility of  the  filing  of  mechanics'  liens,  which  would  relate  back 
to  the  commencement  of  the  building,  and  thus  antedate  the 
mortgage,  created  a  twofold  danger:  First,  it  was  a  defect  in 
the  title  which  might  make  it  unmarketable  as  a  first  ineum- 
brance,  and,  if  the  holder  was  compelled  to  sell  it,  he  could  only 
do  so  at  a  loss ;  and,  secondly,  in  case  of  a  sale  of  the  property, 
the  mechanics'  liens  would  have  priority  in  the  distribution  of 
the  proceeds,  and  the  mortgage  might  have  to  bear  a  deficiency. 
The  covenant  already  quoted  insured  against  both  these  losses, 
but,  as  the  insurer  was  not  willing  to  undertake  the  indefinite 
liability  of  the  first,  a  clause  was  added,  "saving  the  defects, 
liens,  or  incumbrances  excepted  in  Schedule  B. "  This  was 
clearly  a  restriction  of  the  liability  previously  assumed,  and 


WHEELER  v.  REAL  ESTATE  CO.  583 

was  not  intended  to  create  any  new  liability  of  its  own.  Turn- 
ing to  Schedule  B,  we  find  that  it  sets  out  "defects  or  objec- 
tions to  title,  and  liens,  charges,  and  incumbrances  thereon, 
which  do  or  may  now  exist,  and  against  which  the  company 
does  not  agree  to  insure;"  and,  first,  " unmarketability  by 
reason  of  the  possibility  of  mechanics'  and  municipal  liens  is 
excepted  from  insurance."  Possibility  of  liens,  to  affect  mar- 
ketability, must,  of  course,  be  a  present  possibility.  A  future 
possibility  of  liens  can  never  be  escaped  in  any  case,  and  there- 
fore cannot  make  a  title  unmarketable.  But  "actual  losses  by 
reason  of  such  liens  *  *  *  are  insured  against,"  and 
"such  liens"  are  those  already  referred  to,  those  having  a 
present  possibility.  The  meaning  of  this  language  does  not 
admit  of  doubt.  The  main  covenant  includes  several  classes 
of  liabilities.  Schedule  B  excepts  one  class,— uninarketability" 
by  reason  of  possibility  of  liens, — but,  by  an  exception  to  the 
exception,  prevents  the  exclusion  of  actual  losses  by  such  liens ; 
that  is,  should  a  mechanic's  lien  intervene,  the  insurer  will  not 
indemnify  for  the  loss  from  the  unmarketability  of  the  mort- 
gage thereby  caused,  but  will  make  good  any  actual  loss,  such 
as  the  deficiency  of  the  fund  to  satisfy  the  mortgage  after  pay- 
ment of  the  lien.  The  general  intent  and  effect  of  the  whole 
policy  were  to  insure  the  mortgage  as  a  valid  security  both  as 
to  title  and  incumbrances.  As  to  title,  all  defects  were  includ- 
ed, except  the  one  of  unmarketability  by  reason  of  possibility 
of  liens.  As  to  liens  or  incumbrances,  only  those  were  included 
which  come  under  either — First,  the  main  covenant  (those 
actually  charging  the  property  at  the  date  of  the  policy)  ;  or, 
secondly,  under  Schedule  B,  mechanics'  or  municipal  claims 
' '  which  do  or  may  now  exist ' '  at  the  same  date,  to  wit,  inchoate 
mechanics'  liens,  which,  though  not  yet  in  actual  existence, 
may,  within  six  months  of  the  completion  of  the  building, 
spring  up,  anoacquire  an  existence  as  of  a  date  prior  to  the 
policy.  Not  until,  by  the  lapse  of  time,  the  danger  of  such 
liens  should  be  passed,  would  the  mortgage  be  secure  as  a  first 
incumbrance.  Before  so  secure,  there  was  the  danger,  not  only 
of  mechanics',  but  also  of  municipal,  liens  intervening.  The 
latter  were  therefore  classed  with  the  former,  and  actual  loss 
by  reason  of  either  was  insured  against.  But  there  is  no  cove- 
nant or  language  indicating  any  intent  to  go  beyond  that  limit 
of  time,  and  to  assume  a  general  liability  to  indemnify  against 


584  TITLE    INDEMNITY   BONDS. 

possible  future  ineumbrances,  municipal  or  other.  The  policy 
was  executed  in  1888.  The  municipal  work  for  which  the 
claims  in  question  were  filed  was  not  done  till  1891.  Such 
claims  were  neither  a  charge  on  the  property  at  the  date  of  the 
policy,  nor  became  so  Jgithin  the  period_pjrovided  for  in  Sched- 
ule B.  They  were  not  within  the  policy  at  all,  and  created  no 
cause  of  action  under  it. 

Judgment  reversed. 


PLACE  v.  ST.  PAUL. TITLE  INSURANCE  &  TRUST  CO. 

1897. 

67  Minn.  126;  69  N.  W.  Rep.  707;  64  Am.  St.  Rep.  404. 

Appeal  from  district  court,  Ramsey  county;  Hascal  R.  Brill, 
Judge. 

COLLINS,  J.  Two  questions  only  are  presented  by  this  ap- 
peal, both  dependent  upon  the  construction  to  be  placed  upon 
language  used  in  a  title  insurance  policy  issued  by  defendant 
company  to  plaintiffs  as  mortgagees  of  certain  real  property. 
The  contract,  as  stated  in  the  policy,  was,  among  other  things, 
to  indemnify,  keep~harmless,  and  insure  plaintiffs  from  all  loss 
or  damage,  not  to  exceed  a  stated  sum  of  money,  sustained  by 
reason  of  defects  in  the  title  of  the  mortgagors  in  the  mortgaged 
estate,  excepting  such  as  were  set  forth  in  an  attached  schedule, 
and  subject,  also,  to  the  stipulations  and  conditions  made  a 
part  of  the  policy.  In  the  schedule  an  item,  stated  as  "Ten- 
ancy of  the  present  occupants,"  was  mentioned  as  a  defect  in 
or  objection  to  the  title  against  which  the  company  did  not  in- 
sure; and  among  the  stipulations  and  conditions  of  the  policy 
was  one  that  "no  right  of  action  shall  accrue  under  this  policy 
unless  -t.he  insured,  or  those  claiming  under  him  as  aforesaid, 
shall  have  been  aetuallz  evicted  under  an  adverse  title  not  men-v 
tioned  or  referred  to  in  the  above  Schedule  B,  orHBiless  there 
has  been  a  final  judgment  upon  a  lien  or  incumbrance  not  men- 
tioned or  referred  to  in  said  Schedule  B,  under  which  the  title 
of  the  insured  will  be  divested  by  sale  under  judgment  or  fore- 
closure, or  unless  the  insured  has  contracted  to  sell  the  estate 
or  interest  insured,  and  the  title  has  been  declared,  by  a  court 
of  last  resort  of  competent  jurisdiction,  defective  or  incurnber-. 


PLACE  v.   ST.  PAUL  TITLE  ETC.  CO.  585 

ed  by  reason  of  a  defect  or  incumbrance  for  which  the  company 
would  be  liable  under  this  policy."  From  the  complaint  it 
appeared  that,  at  a  foreclosure,  sale  of  the  mortgaged  premises, 
the  plaintiffs  purchased  the  same  for  the  full  amount  due  on 
the  debt;  that  no  redemption  had  been  made  within  the  statu- 
tory period;  that,  at  the  date  the  mortgage  was  delivered,  and 
when  the  policy  was  issued,  the  mortgagors  were  not  the  own- 
ers, in  fee  or  otherwise,  of  a  portion  of  the  mortgaged  premises, 
nor  were  they  in  possession,  but,  to  the  contrary,  said  portion 
was  then,  and  ever  since  has  been,  owned  and  in  the  actual 
adverse  possession  and  occupancy  of  other  persons;  and  that, 
prior  to  the  issuance  of  the  policy,  the  mortgagors  had  been 
evicted  therefrom. 

1.  It  is  the  position  of  defendant's  counsel  that,  from  the 
allegations  of  this  complaint,  it  appears  that  the  case  in  hand 
was  expressly  excepted  from  the  policy  because  of  the  words 
in  the  schedule,  "Tenancy  of  the  present  occupants."  If  we 
are  to  give  these  words  their  broadest  signification,  and  con- 
strue them  without  regard  to  the  object  or  purpose  of  the  con- 
tract, or  the  language  used  elsewhere,  the  position  would  be 
quite  easily  sustained;  for  the  broad  definition  of  a  "tenant" 
is  one  who  holds  or  possesses  lands  or  tenements  by  any  kind  of 
right  or  title,  whether  in  fee,  for  life,  for  years,  at  will,  or 
otherwise.  The  persons  mentioned  in  the  complaint  as  having 
been,  and  as  still  continuing  in  adverse  possession, 
are  certainly  tenants,  within  this  comprehensive  defini- 
tion. But,  when  we  read  the  entire  policy,  and  consider 
its  object  and  alleged  purpose, — that  it  purported  to  be  a  con- 
tract to  indemnify  plaintiffs,  as  mortgagees,  against  loss  or  dam- 
age sustained  by  reason  of  defects  in  the  mortgagors'  title; 
that,  if  the  construction  contended  for  by  counsel  for  the  de- 
fendant should  prevail,  it  would  apply  in  cases  where  the 
entire  premises  were  in  the  adverse  possession  of  another,  as 
well  as  those,  like  the  present,  where  only  a  part  is  held  ad- 
versely, leaving  the  policy  holder  remediless  when  he  has  actu- 
ally bought  and  paid  for  protection;  that,  if  the  design  of  the 
defendant  was  to  exclude  from  its  policy  all  liability  as  to  the 
title  "of  the  present  occupants,"  it  could  have  said  so  by  sim- 
ply changing  one  word  of  the  phrase,  "tenancy  of  the  present 
occupants,"  which,  at  most,  is  ambiguous  only;  that,  where  an 
expression  in  an  insurance  policy  is  of  such  a  character,  the 


586  TITLE    INDEMNITY    BONDS. 

ambiguity  is  to  be  construed  against  the  insurer,  and  in  favor 
of  the  insured;  that  the  word  "tenant"  is  generally  used  in  a 
popular  sense,  and,  as  mentioned  in  this  sense,  according  to 
Webster,  "one  who  has  the  occupation  or  temporary  possession 
of  lands  or  tenements  whose  title  is  in  another;  correlative  to 
landlord";  and  also  that,  without  a  provision  of  this  import, 
the  insurer  would  probably  incur  a  liability  if  there  were  out- 
standing leases,  and  the  insured  could  not  obtain  possession  at 
any  moment, — we  are  decidedly  of  ihe  opinion  that  the  tenancy 
mentioned  in  the  schedule  was  that  which  has  arisen  through 
the  occupation  of  temporary  possession  of  part  or  all  of  the 
premises  by  those  who  were  tenants,  in  the  popular  sense  in 
which  that  word  is  used.  See  Caplis  v.  Insurance  Co.,  60 
Minn.  376,  62  N.  W.  440. 

2.  As  the  complaint  fails  to  allege  the  occurrence  of  any  of 
the  conditions  precedent,  hereinbefore  quoted,  as  found  in  the 
policy,  counsel  for  appellant  urge  this  as  another  reason  why 
the  general  demurrer  should  have  been  sustained.  A  final 
judgment  upon  a  lien  or  incumbrance  certainly  has  no  refer- 
ence to  a  case  like  this.  And  counsel  practically  concede  that 
the  condition  requiring  actual  eviction  under  adverse  title  has 
no  application,  for  the  defect  upon  which  plaintiffs  base  their 
cause  of  action  is  inability  to  obtain  possession,  and  entire  want 
of  title,  and  nothing  eke.  It  is  really  admitted  by  counsel  that, 
if  any  of  these  conditions  precedent  stand  in  the  way  of  a  re- 
covery upon  the  present  complaint,  it  must  be  that  which  pro- 
hibits recovery  unless  the  insured  has  contracted  to  sell  the 
estate  or  interest  insured,  and  the  title  has  been  declared  by  a 
court  of  last  resort  of  competent  jurisdiction  defective  or  in- 
cumbered  by- reason  of  a  defect  or  incumbrance  for  which  the 
company  would  be  liable  under  the  policy.  If  this  condition, 
was  intended  to  apply  to  a  case  of  this  character,  it  demands  of 
plaintiffs  that,  with  full  knowledge  of  a  total  want  of  title  to 
a  part  of  the  premises,  they  find  someone  upon  whom  they  can 
impose  by  entering  into  a  contract  to  sell  that  which  they  do 
not  own,  or  that  they  enter  into  a  sham  contract  of  sale,  have 
the  vendee  refuse  to  perform,  bring  a  suit  against  him,  and 
then  go  through  the  form  of  an  action  which  is  fictitious  from 
start  to  finish,  and  a  fraud  upon  the  court  in  which  it  is  prose- 
cuted. They  are  either  compelled  to  perpetrate  a  fraud  upon 
the  innocent  vendee,  or  a  fraud  upon  the  court  in  which  they 


FIDELITY  CO.  v.  COURTNEY.  587 

bring  the  action.  We  cannot  believe  that  the  defendant  com- 
pany ever  intended  the  condition  in  question  to  cover  a  case 
like  this,  but,  rather,  that  it  was  designed  to  guard  against 
actions  for  nominal  damages,  instituted  by  persons  who  had 
ascertained  that  defects  existed  in  their  titles,  but  whose  posses- 
sion remained  undisturbed,  and  who  had  suffered  no  loss.  It 
was  an  adaptation  of  the  law  relating  to  covenants  in  a  deed, 
that  actual  loss  must  precede  actual  compensation,  to  the  title 
insurance  business.  None  of  the  conditions  found  in  the  quot- 
ed language  apply  to  a  case  where  not  only  does  another  party 
hold  possession  of  the  land  adversely  to  the  insured,  but  the 
latter  has  lost  it  absolutely  by  reason  of  a  defect  in  the  insured 
title. 

Order  affirmed. 


FIDELITY  &  DEPOSIT  CO.  v.  COURTNEY.     1902. 
186  U.  S.  342;  22  Sup.  Ct.  Rep.  834. 

Statement  by  Mr.  Justice  WHITE: 

The  action  below  was  brought,  on  February  5,  1898,  by 
Courtney,  as  receiver  of  the  German  National  Bank  of  Louis- 
ville, appointed  by  the  Comptroller  of  the  Currency  on  Janu- 
ary 22,  1897,  four  days  after  the  closing  of  the  bank.  Eecovery 
was  sought  upon  a  bond  of  indemnity  for  $10,000  and  renewals 
thereof,  taking  effect  respectively  on  June  1,  1894,  June  1, 
1895,  and  June  1,  1896.  The  condition  of  the  bond  was  to  hold 
the  bank  harmless  against  any  loss  which  it  might  sustain  by 
reason  of  any  fraud  committed  by  Jacob  M.  McKnight,  origin- 
ally as  vice  president  and  later  as  president  of  the  bank.  The 
sum  of  $18,742.74  was  alleged  to  have  been  dishonestly  and 
fraudulently  embezzled,  and  misapplied  out  of  the  funds  of  the 
bank  from  July  1,  1894,  to  January  4,  1897,  by  McKnight, 
either  as  vice  president  or  president,  and  a  statement  of  the 
items  was  embodied  in  the  petition.  Due  proof  of  the  claim 
was  averred  to  have  been  made  on  July  2,  1897.  By  answer 
and  amendments  thereto  the  defendant  took  issue  as  to  the 
happening  of  each  of  the  alleged  defaults;  it  averred  that 
McKnight,  prior  to  January  21,  1896,  had  indulged  in  specula- 
tions in  whisky  and  tobacco  and  in  disreputable  and  unlawful 


588  TITLE    INDEMNITY    BONDS. 

habits  and  pursuits;  it  further  averred  that  the  cashier  and 
teller  (one  and  the  same  individual),  or  the  vice  president 
of  the  bank,  who  became  such  when  McKnight  became  the 
president,  or  the  directors  thereof,  at  or  about  the  time  of  the 
happening  of  the  defaults,  had  knowledge  of  the  same,  and 
that  the  bank  condoned  the  defaults  of  McKnight  for  which 
recovery  was  sought.  In  effect,  also,  it  was  alleged  that  there 
had  been  a  violation  of  each  of  the  other  conditions  and  stipula- 
tions of  the  bond.  The  amended  answer  concluded  with  the 
following  averment: 

"When  said  bond  of  June  1,  1894,  given  by  defendant  to 
said  bank  for  the  fidelity  of  said  McKnight,  as  set  out  in  the 
petition,  was  renewed  for  another  year  on  June  1,  1895,  to  cover 
the  period  from  that  date -to  June  1,  1896,  and  was  again  re- 
newed and  continued  on  June  1,  1896,  to  cover  the  period  from 
that  date  to  June  1,  1897,  said  bank,  through  an  officer  other 
than  said  McKnight,  represented  and  asserted  and  certified, 
with  the  knowledge  of  the  directors  of  the  said  bank,  that  the 
books  and  accounts  of  said  McKnight  had  been  examined  by 
said  bank  and  were  then  found  to  be  correct  in  every  respect, 
and  that  all  moneys  handled  by  him  had  been  accounted  for 
up  to  that  time,  and  that  he  had  performed  his  duties  in  an 
acceptable  and  satisfactory  manner,  and  that  said  bank  knew 
of  no  reason  why  the  guaranty  bond  executed  by  this  defend- 
ant should  not  be  continued;  but  defendant  says  that,  in  fact, 
said  statements,  assertions,  and  certificates  were,  and  each  of 
them  was,  false  and  fraudulent,  and  known  by  said  bank  to  be 
false  and  fraudulent,  but  the  defendant  did  not  know  the  same 
to  be  false  or  fraudulent,  and,  on  the  contrary,  the  defendant 
believed  and  relied  on  said  statements  and  each  of  them,  and 
but  for  said  statements,  assertions,  and  certificates,  the  defend- 
ant would  not  have  renewed  or  continued  said  bond  on  June  1, 
1895,  or  June  1,  1896,  and  the  defendant  would  immediately 
have  canceled  and  revoked  said  bond,  as  it  had  a  right  to  do, 
and  as  the  said  bank  knew  it  had  a  right  to  do.  The  said  bank 
purposely  withheld  from  the  defendant  the  proper  information 
as  to  the  acts  and  conduct  and  accounts  of  said  McKnight,  and 
thus  misled  and  deceived  the  defendant." 

A  reply  was  filed  controverting  the  affirmative  allegations  of 
the  answer,  and  the  cause  was  tried  to  a  jury.  Various  excep- 
tions were  taken  by  the  defendant  to  the  exclusion  of  offered 


FIDELITY  CO.  v.  COURTNEY.  589 

evidence  and  to  instructions  to  the  jury.  A  verdict  was  re- 
turned for  plaintiff,  and  from  the  judgment  entered  thereon 
an  appeal  was  taken  to  the  circuit  court  of  appeals  for  the 
sixth  circuit.  That  court  affirmed  the  judgment.  43  C.  C.  A. 
331,  103  Fed.  599. 

A  writ  of  certiorari  was  then  allowed. 

Mr.  Justice  WHITE,  after  making  the  foregoing  statement,  de- 
livered the  opinion  of  the  court : 

We  shall  consider  under  separate  headings  the  several  prop- 
ositions upon  which  reliance  is  placed  to  demonstrate  that 
error  was  committed  by  the  trial  court. 

1.  The  court  erred  in  admitting  in  evidence  a  jnot.iftp.  nf  the 
Default  of  McKnight  given  to  the  surety  company  by  the  re- 
ceiver on  February  18,  1897,  and  in  instructing  the  jury  that 
the  requirements  in  the  bond,  that  immediate  notice  should  be 
given  of  a  default,  was  fulfilled  by  giving  notice  "as  soon  as 
reasonably  practicable  and  with  promptness"  or  "within  a  rea- 
sonable time." 

The  bank  was  closed  by  the  Comptroller  on  January  18, 
1897,  and  the  receiver  was  appointed  four  days  afterwards. 
The  experts  employed  by  the  receiver  to  examine  the  books  of 
the  bank  began  to  discover  the  defaults  of  McKnight  "about 
two  or  three  weeks  after  the  bank  was  closed."  The  notice  by 
the  receiver  to  the  surety  company  that  McKnight  was  a  de- 
faulter was  given  on  February  18,  1897.  It  follows  that  the 
notice  was  given  within  ten  to  seventeen  days  after  the  first 
discovery  of  a  default.  Both  the  trial  court  and  the  circuit 
court  of  appeals,  reviewing  numerous  authorities,  held  that  the 
requirement  in  the  bond  "that  the  employer  shall  immediately 
give  the  company  notice  in  writing  of  the  discovery  of  any  de- 
fault or  loss"  ought  not  to  receive  the  construction  that  it  was 
intended  by  the  parties  that  notice  of  a  default  should  be 
given  instantly  on  the  discovery  of  a  default,  but  that  what 
was  meant  was  that  notice  should  be  given  within  a  reasonable 
tune,  having  in  view  all  the  circumstances  of  the  case.  In  so 
deciding  we  think  the  court  did  not  err.  Indeed,  this  construc- 
tion of  the  word  "immediate"  would  seem  to  be  applied  in 
practice,  as  is  illustrated  by  the  bond  of  indemnity  considered 
in  the  case  of  the  Guarantee  Co.  of  N.  A.  v.  Mechanics'  Sav. 
Bank  &  T.  Co.,  183  U.  S.  402,  ante,  124,  22  Sup.  Ct.  Rep.  124, 
where  one  of  the  conditions  was  "that  the  company  shall  be 


590  TITLE    INDEMNITY    BONDS. 

notified  in  writing  of  any  act  on  the  part  of  said  employee 
which  may  involve  a  loss  for  which  the  company  is  responsible 
hereunder  to  the  employee  immediately  or  without  unreasonable 
delay." 

A  quite  recent  case,  decided  by  the  supreme  court  of  New 
Hampshire  (Ward  v.  Maryland  Casualty  Co.,  51  Atl.  900),  so 
lucidly  states  the  true  construction  of  the  word  "immediate" 
as  employed  in  a  bond  cognate  to  the  one  under  consideration 
that  we  excerpt  a  passage  from  the  opinion  (p.  902) : 

"The  defendants'  liability  depends  in  part  upon  the  answer 
to  the  question  whether  the  plaintiffs  gave  them  'immediate' 
notice  in  writing  of  0 'Council's  accident,  the  claim  made  on 
account  of  it,  and  the  suit  that  was  brought  to  enforce  the 
claim.  This  involves  an  ascertainment  of  the  meaning  of  the 
word  'immediate'  as  used  in  the  policy.  The  word,  when  relat- 
ing to  time  is  defined  in  the  Century  Dictionary  as  follows: 
'"Without  any  time  intervening;  without  any  delay;  present; 
instant;  often  used,  like  similar  absolute  expressions,  with  less 
strictness  than  the  literal  meaning  requires, — as  an  immediate 
answer.'  It  is  evident  that  the  word  was  not  used  in  this  con- 
tract in  its  literal  sense.  It  would  generally  be  impossible  to 
give  notice  in  writing  of  a  fact  the  instant  it  occurred.  It  can- 
not be  presumed  that  the  parties  intended  to  introduce  into 
the  contract  a  provision  that  would  render  the  contract  nuga- 
tory. As  'immediate'  was  understood  by  them,  it  allowed  the  in- 
tervention of  a  period  of  time  between  the  occurrence  of  the  fact 
and  the  giving  of  notice  more  or  less  lengthy  according  to  the 
circumstances.  The  object  of  the  notice  was  one  of  the  circum- 
stances to  be  considered.  If  it  was  to  enable  the  defendants  to 
take  steps  for  their  protection  that  must  necessarily  be  taken 
soon  after  the  occurrence  of  the  fact  of  which  notice  was  to  be 
given,  a  briefer  time  would  be  required  to  render  the  notice 
immediate  according  to  the  understanding  of  the  parties  than 
would  be  required  if  the  object  could  be  equally  well  attained 
after  considerable  delay.  For  example,  a  delay  of  weeks  in 
giving  notice  of  the  commencement  of  the  employee's  suit  might 
not  prejudice  the  defendants  in  preparing  for  a  defense  of  the 
action,  while  a  much  shorter  delay  in  giving  notice  of  the  acci- 
dent might  prevent  them  from  ascertaining  the  truth  about  it. 
The  parties  intended  by  the  language  used  that  the  notice  in 
each  case  should  be  given  so  soon  after  the  fact  transpired  that, 


FIDELITY  CO.  v.  COURTNEY.  591 

in  view  of  all  the  circumstances,  it  would  be  reasonably  im- 
mediate. If  a  notice  is  given  'with  due  diligence  under  the 
circumstances  of  the  case,  and  without  unnecessary  and  un- 
reasonable delay,'  it  will  answer  the  requirements  of  the  con- 
tract. Chamberlain  v.  New  Hampshire  F.  Ins.  Co.,  55  N.  H. 
249,  265,  268 ;  May,  Ins.  1st  ed.  §  462,  14th  ed.  §  1039,  Donahue 
v.  Windsor  County  Mut.  L.  Ins.  Co.,  56  Vt.  375;  Lockwood  v. 
Middlesex  Mut.  Assur.  Co.,  47  Conn.  553,  568.  Whether  the 
notices  were  reasonably  immediate, — like  the  kindred  question 
of  what  is  a  reasonable  time, — are  questions  of  fact  that  must 
be  determined  in  the  superior  court.  Tyler  v.  Webster,  43  N. 
H.  147,  151;  State  v.  Plaisted,  43  N.  H.  413;  Chamberlain  v. 
New  Hampshire  F.  Ins.  Co.,  55  N.  H.  265;  Austin  v.  Eicker, 
61  N.  H.  97;  Ela  v.  Ela,  70  N.  H.  163,  165,  46  Atl.  414." 

We  think  the  trial  court  was  right  in  refusing  to  instruct,  as 
a  matter  of  law,  that  the  notice  was  not  given  as  soon  as  reason- 
ably practicable  under  the  circumstances  of  the  case,  or  with- 
out unnecessary  delay,  and  in  leaving  the  jury  to  determine  the 
question  whether  the  receiver  had  acted  with  reasonable 
promptness  in  giving  the  notice. 

2.  The  court  erred  in  instructing  the  jury  that  the  m-nnf  of '_ 
claim  sent  to  the  surety  company  by  the  receiver  on  July  2, 
is9T,  was  made  "as  soon  as  practicable"  after  giving  of  notice 
of  the  default  of  McKnight. 

This  objection  is  also  without  merit.  The  requirement  of 
the  bond  was  that  the  employer  "shall  file  with  the  company 
his  or  her  claim  hereunder,  with  full  particulars  there- 
of as  soon  as  practicable"  after  the  giving  of  written  notice 
of  a  default  or  loss.  What  was  required  was  not  a  par- 
tial, but  a  full,  statement  of  all  the  items  of  claimed  misappro- 
priations on  which  the  right  to  recover  upon  the  bond  was 
based.  The  investigation  to  ascertain  the  various  defaults  of 
McKnight  continued  after  the  giving  of  the  preliminary  notice 
of  default,  and  the  evidence  in  the  record  fails  to  give  any 
support  to  the  contention  that  the  proof  of  claim  was  unreason- 
ably delayed,  and  was  not  made  as  soon  as  practicable  after 
the  full  particulars  thereof  were  ascertained. 

3.  The  court  erred  in  instructing  the  jury  that  the  aver- 
ments contained  in  the  petition  filed  by  the  receiver  in  an 
action   in   attachment   against  McKnight,   brought   in   a  state 
court  of  Kentucky,  on  March  6,  1897,  to  recover  various  items 


592  TITLE    INDEMNITY    BONDS. 

of  alleged  indebtedness  of  McKnight  to  the  bank,  should  be 
given  no  effect  in  their  deliberations,  as  but  one  of  said  items 
was  embraced  in  the  present  action. 

The  petition  referred  to  was  presumably  introduced  in  evi- 
dence on  behalf  of  the  defendant,  as  tending  to  establish  that 
the  proof  of  claim  was  not  made  by  the  receiver  as  soon  as 
practicable  after  the  giving  of  notice  that  McKnight  had  been 
guilty  of  a  default.  "While  the  trial  judge  did  not  state  the 
reasons  which  led  him  to  instruct  the  jury  to  disregard  the 
statements  in  the  petition,  the  reason  for  such  action  was  mani- 
fest. The  petition  counted  upon  various  items,  a  portion  only 
of  which  were  embraced  in  the  petition  in  the  action  on  trial, 
and  the  fact  that  the  petition  in  the  attachment  action  showed 
that  when  filed  the  receiver  knew  of  some  of  the  misappropria- 
tions of  McKnight  did  not  tend  to  prove  that  he  then  had 
knowledge  of  all  of  the  defaults  of  McKnight. 

4.  The  court  erred  in  refusing  to  permit  the  defendant  to 
read  as  evidence  to  the  jury  a  letter  of  Edwin  Warfield,  presi- 
dent of  the  defendant,  and  dated  May  15,  1896,  and  addressed 
to  the  German  National  Bank  of  Louisville,  Kentucky,  and  also 
the  reply  of  R.  E.  Reutlinger,  the  cashier  of  the  said  bank, 
written  on  May  29,  1896,  addressed  to  the  defendant,  said 
letter  having  been  an  inquiry  by  the  president  of  the  defendant 
as  to  the  renewal  of  the  bond  of  McKnight,  and  the  response 
being  an  assurance  by  the  cashier  of  the  bank  that  McKnight 
had  up  to  that  time  performed  his  duties  in  an  acceptable  and 
satisfactory  manner,  and  he,  the  cashier,  knew  of  no  reason  why 
the  bond  should  not  be  continued.  These  letters,  it  being  con- 
tended, were  erroneously  excluded  on  the  ground  that  it  had 
not  appeared  from  the  evidence  that  there  was  special  author- 
ity from  the  board  of  directors  to  the  cashier  to  write  the  letter 
of  response  of  May  29,  1896.  Further,  the  court  also,  it  is  as- 
serted, erroneously  refused  to  allow  the  defendant  to  prove  by 
circumstantial  evidence  that  the  board  of  directors  selected  the 
bondsman  of  McKnight  and  paid  for  the  bond,  and  that  the 
said  cashier  was  acting  in  this  matter  with  the  knowledge  and 
for  the  benefit  and  with  the  approval  of  the  board  of  direct- 
ors. 

We  are  constrained  to  the  conclusion  that  error  was  com- 
mitted in  rejecting  the  evidence  referred  to  in  the  foregoing 
contention.  It  was  competent  for  the  defendant  to  show  that 


FIDELITY  CO.  v.  COURTNEY.  593 

the  bank  had  concerned  itself  in  and  about  the  obtaining  of  the 
bond  and  renewals  in  such  manner  as  to  cause  the  transaction 
to  become  in  effect  the  business  of  the  bank.     The  bank  had 
notice  from  the  terms  of  the  original  bond  that  it  was  issued 
in  reliance  upon  statements  and  representations  made  on  its 
behalf  to  the  surety  company,  and  that,  in  the  ordinary  course 
renewals,  which  were  to  be  optional  with  the  surety  company, 
might  also  be  based  upon  further  statements  to  be  made  on 
behalf  of  the  bank.    Thus,  in  the  original  bond,  it  was  recited 
that  "the  said  employer  has  delivered  to  the  company  a  cer- 
tain statement,  it  being  agreed  and  understood  that  such  state- 
ment constitutes  an  essential  part  of  the  contract  hereinafter 
expressed."    It  was  a  reasonable  and  proper  precaution,  in  an- 
ticipation of  a  desired  renewal,  to  propound  the  inquiries  which 
were  submitted  by  the  surety  company.    The  inquiry  was  con- 
tained in  a  written  communication,  addressed  to  the  ~barik,  it 
was  received  by  the  bank,  and  it  was  proper  to  presume  that  it 
was  delivered  to  the  official  who  made  reply  thereto,  by  author- 
ity of  the  bank,  he  being  the  executive  officer  who  was  charged 
with  conducting  the  correspondence  of  the  bank.     We  think 
the  making  of  the  certificate  was  an  act  done  in  the  course  of 
the  business  of  the  bank,  by  an  agent  dealing  with  the  surety 
company  for  and  on  behalf  of  the  bank.     It  did  not  purport 
to  be,  nor  was  it  designed  to  be,  the  mere  personal  representa- 
tion of  the  individual  who  filled  the  office  of  cashier,  but  it  was 
an  official  act,  performed  on  behalf  of  the  bank.    The  informa- 
tion solicited  was  such  as  was  proper  to  be  asked  of  and  com- 
municated by  the  bank,  and  as  the  renewal  was  presumably 
made  upon  the  faith  of  the  statements  contained  in  the  certifi- 
cate, the  bank  ought  not  to  be  heard,  while  seeking  to  obtain 
the  benefits  of  the  stipulations  agreed  to  be  performed  by  the 
surety,  to  deny  the  authority  of  its  officer  to  make  the  repre- 
sentations which  induced  the  surety  to  again  bind  itself  to  bo 
answerable  for  the  faithful  performance  by  McKnight  of  the 
duties  of  his  employment.    Pittsburgh,  C.  &  St.  L.  E.  Co.  v. 
Keokuk  &  H.  Bridge  Co.,  131  U.  S.  371,  33  L.  ed.  157,  9  Sup. 
Ct.  Rep.  770.    In  Guarantee  Co.  of  N.  A.  v.  Mechanics'  Sav. 
Bank  &  T.  Co.,  183  U.  S.  402,  ante,  124,  22  Sup.  Ct.  Rep.  124, 
this  court  recognized  as  binding  upon  the  bank  a  certificate 
given  by  one  of  its  officers  embodying  replies  to  questions  asked 
by  the  guarantee  company  respecting  one  of  the  employees  of 
38 


594  TITLE    INDEMNITY    BONDS. 

the  bank,  although  no  proof  was  introduced  that  special  au- 
thority had  been  conferred  upon  the  officer  to  make  the  certifi- 
cate. Nor  does  the  ruling  in  American  Surety  Co.  v.  Pauly, 
170  U.  S.  156,  42  L.  ed.  985,  18  Sup.  Ct.  Rep.  561,  warrant  the 
claim  that  it  is  an  authority  against  the  admissibility  of  the 
certificate  here  in  question.  In  the  bond  considered  in  the 
Pauly  Case,  it  was  not  agreed  that  the  statement  of  the  presi- 
dent, upon  which  the  bond  was  obtained,  should  be  the  basis 
of  the  bond.  The  answers  made  by  the  person  who  was  presi- 
dent of  the  bank  to  the  interrogatories  of  the  surety  company 
were  but  mere  commendations  by  one  individual  of  another 
individual,  at  a  time  when,  as  said  by  the  court,  "no  relations 
existed  between  the  bank  and  the  surety  company."  Again,  in 
the  Pauly  Case,  no  letter  of  inquiry  was  addressed  to  the  bank, 
unlike  the  practice  pursued  with  respect  to  the  renewal  here  in 
controversy,  and  the  letter,  whose  contents  in  the  Pauly  Case 
was  claimed  to  be  binding  on  the  bank,  was  written  by  one 
who  was  not  charged  with  the  duty  of  conducting  the  corre- 
spondence of  the  bank.  As  held  in  First  Nat.  Bank  v.  Stewart, 
114  U.  S.  224,  29  L.  ed.  101,  5  Sup.  Ct.  Rep.  845,  a  communi- 
cation which  on  its  face  evidences  that  it  was  written  by-  the 
cashier  of  a  bank,  should  not  be  excluded  from  the  jury  as  not 
being  an  act  of  the  bank,  where  "it  appears  with  reasonable 
certainty  to  have  regard  to  the  business  of  the  bank."  In  the 
case  at  bar  it  is  manifest  these  elements  were  present  and  the 
exclusion  of  the  certificate,  as  also  of  the  evidence  designed  to 
establish  that  the  giving  of  the  certificate  was  an  act  done  in 
the  course  of  the  business  of  the  bank,  was  erroneous. 

But  the  fact  that  error  was  committed  in  the  particulars  just 
stated  does  not  necessarily  lead  to  a  reversal,  since  the  settled 
doctrine  is  that,  even  if  error  has  been  committed,  yet  if  it 
appears  clearly  from  the  record  that  such  error  was  not  preju- 
dicial, the  judgment  cannot  be  disturbed.  Origet  v.  Hedden, 
155  U.  S.  228,  235,  39  L.  ed.  130,  15  Sup.  Ct.  Rep.  92;  Fidelity 
Mut.  L.  Asso.  v.  Mettler,  185  U.  S.  308,  ante,  662,  22  Sup.  Ct. 
Rep.  662.  In  order  to  determine  whether  prejudice  resulted 
from  the  rulings  referred  to,  it  becomes  essential  to  state  the 
facts  as  portrayed  in  the  bill  of  exceptions. 

McKnight  was  for  a  period  of  time  vice  president  and  subse- 
quently the  president  of  the  German  National  Bank.  Any  and 
all  claims  which  may  have  been  asserted  in  the  petition  as  to 


FIDELITY  CO.  v.  COURTNEY.  505 

misconduct  or  default  on  the  part  of  McKnight  prior  to  the  1st 
of  January,  1896,  were  abandoned  at  the  trial,  and  there  is 
nothing  in  the  record  to  support  the  contention  that  anything 
took  place  prior  to  that  date  which  affected  the  truth  of  the 
statement  made  in  the  certificate  given  by  the  cashier  on  May 
29,  18Q6.  In  January,  1896,  McKnight  was  president  and  a 
director;  Adolph  Reutlinger  was  vice  president  and  a  director, 
and  R.  E.  Reutlinger  was  cashier  and  teller  of  the  bank. 

On  January  14,  1896,  the  mayor  of  the  city  of  Louisville 
died.  The  vacancy  occasioned  was  to  be  filled  by  the  municipal 
council  of  the  city,  and  McKnight  became  a  candidate  for  the 
office.  There  was  an  active  contest,  and  the  incidents  connected 
with  the  election  became  the  subject  of  discussion  in  the  pub- 
lic press  and  of  consequent  notoriety  in  the  community.  One 
Edmunds,  who  was  a  business  partner  of  McKnight,  was  a 
prominent  factor  in  said  contest,  as  representing  the  interest 
of  McKnight,  and  Edmunds  frequently  visited  the  bank  and 
conferred  with  McKnight  in  respect  to  the  contest.  Edmunds, 
on  his  visits  to  the  bank,  "was  often  seen  by  and  had  conver- 
sations with  the  vice  president  and  other  directors  of  the  bank, 
who  knew  the  purpose  of  his  visits."  The  firm  of  S.  E.  Ed- 
munds &  Co.,  composed  of  McKnight  and  Edmunds,  had  an 
account  on  the  books  of  the  bank.  Edmunds,  however,  had  no 
individual  account  with  the  bank. 

On  January  18,  1896,  Edmunds  came  to  the  bank,  and  there 
drew  his  personal  check  on  the  bank  for  the  sum  of  $1,000. 
McKnight  directed  this  check  to-  be  cashed,  and,  as  Edmunds 
wished  ten  $100  bills  for  the  check,  McKnight,  in  the  hearing 
of  the  vice  president,  told  the  cashier  to  take  $1,000  and  go  to 
a  neighboring  bank  and  get  the  denomination  of  bills  desired, 
which  he  did,  and  they  were  handed  over  to  Edmunds.  The 
check  of  Edmunds  which  had  been  thus  cashed,  although  he 
had  no  individual  account  with  the  bank,  was,  by  the  direction 
of  McKnight,  carried  by  the  cashier  as  a  cash  item  until  March 
12  following.  On  the  date  last  named,  by  the  direction  of  Mc- 
Knight, the  amount  was  charged  to  the  account  of  S.  E.  Ed- 
munds &  Co.,  it  not  appearing  that  the  effect  of  this  debit  was 
to  overdraw  this  latter  account. 

It  was  shown  that  at  the  time  Edmunds  drew  this  check 
there  was  an  understanding  between  himself  and  McKnight 
that  he,  McKnight,  should  be  responsible  for  the  check  and  see 


596  TITLE    INDEMNITY   BONDS. 

that  it  was  paid.  The  money  which  Edmunds  received  it  was 
proved  was  used  by  him  in  bribing  four  members  of  the  city 
council  to  vote  for  McKnight  for  mayor,  and  in  consideration 
of  the  payment,  the  parties,  on  receiving  the  money,  signed 
the  following  agreement: 

' '  I  hereby  pledge  myself  to  vote  for  J.  M.  McKnight  for  mayor 
of  the  city  of  Louisville,  first,  last,  and  all  the  time,  until  elected 
or  defeated  before  the  general  council." 

There  was  no  proof  introduced  to  show  that  the  officers  or 
directors  of  the  bank,  other  than  McKnight,  had  any  knowl- 
edge of  the  purpose  for  which  the  check  was  drawn  or  the  use 
which  was  made  of  it,  unless  it  be  that  the  fact  that  they  knew 
that  McKnight  was  a  candidate  for  mayor  had  a  tendency  to 
show  that  he  was  engaged  in  unlawful  practices. 

On  January  21,  1896,  to  pay  his  own  debt,  McKnight  drew 
his  individual  check  (he  having  an  individual  account  with  the 
bank)  for  $1,253,  to  the  order  of  a  person  to  whom  he  was  per- 
sonally indebted.  This  check  was  paid.  McKnight  instructed 
the  cashier  not  to  have  this  check  charged  up,  but  to  carry  it 
as  cash,  and  it  was  so  carried  until  March  12,  1896,  when  Mc- 
Knight directed  that  the  check  be  debited  to  the  account  of  S. 
E.  Edmunds  &  Co.,  which  was  done.  Subsequently,  and  prior 
to  the  12th  of  March,  1896,  another  check  was  drawn  by  Mc- 
Knight, on  his  individual  account,  for  $1,650,  and  was  paid 
and  carried  by  the  cashier,  by  McKnight 's  direction,  as  cash, 
until  March  12,  1896,  when  it  was  charged  up  to  the  Louisville 
Deposit  Collateral  account.  This  latter  was  an  account  on  the 
books  of  the  bank  of  which  McKnight  had  the  management 
and  control  as  president  of  the  bank,  but  in  which  he  had  no 
personal  interest.  It  was  shown  that  the  carrying  of  these 
checks  by  the  cashier  in  his  cash  as  money  was  called  to  the 
attention  of  the  vice  president  of  the  bank,  who  made  inquiry 
on  the  subject  as  to  why  it  was  done,  and  was  informed  that 
it  was  done  at  the  request  of  McKnight,  the  latter  presumably 
directing  the  checks  to  be  charged  as  above  stated,  in  conse- 
quence of  such  inquiry. 

McKnight  was  defeated  for  mayor.  It  was  matter  of  com- 
mon knowledge  in  Louisville  that  there  was  great  dissension 
between  the  elected  mayor  and  members  of  the  boards  of  alder- 
men and  councilmen,  and  that  members  of  the  board  of  alder- 
men were  endeavoring  to  block  legislation  proposed  by  the  new 


FIDELITY  CO.  v.  COURTNEY.  597 

mayor.  There  was  proof  tending  to  show  that  McKnight  fo- 
mented this  discord,  and  drew  up  a  paper,  which  was  signed  by 
five  aldermen,  pledging  themselves  to  be  controlled  in  the  per- 
formance of  their  duties  by  McKnight.  Two  other  signatures, 
however,  were  required  to  get  control  of  the  board.  McKnight 
was  informed  by  Edmunds  that  two  aldermen  were  wavering, 
and  that  to  obtain  their  signatures  to  the  agreement  it  would 
be  necessary  to  pay  each  of  them  $1,000.  On  February  6,  1896, 
McKnight  requested  the  cashier  to  remain  at  the  bank  and 
keep  the  vault  open  after  the  regular  time  for  closing,  and 
said  to  him  that  he  "had  a  big  scheme  on  hand,  and  that  it 
was  a  big  thing."  The  bank  was  kept  open,  and  at  about  half- 
past  six  Edmunds  brought  to  the  bank  the  two  aldermen  in 
question.  Thereupon,  in  the  presence  of  these  two  men  and  the 
cashier,  Edmunds  prepared  a  note,  which  was  then  signed  by 
the  two  aldermen,  as  follows: 

Louisville,  Ky.,  February  6,  1897. 
$2,000.00. 

One  year  after  date  we  promise  to  pay  to  the  order  of  our- 
selves two  thousand  dollars  without  defalcation,  value  received, 
negotiable  and  payable  at  German  National  Bank. 

After  signing  the  note,  the  two  aldermen  went  upstairs,  later 
returned  to  the  bank  office,  and  then  received  from  the  cashier, 
who  acted  under  the  instructions  of  McKnight,  the  sum  of 
$2,000  in  currency. 

It  was  shown  that,  while  upstairs  in  the  bank  building,  the 
two  aldermen  affixed  their  signatures  to  the  following  paper, 
which  had  already  been  signed  by  five  other  of  the  aldermen: 

Louisville,  Ky.,  February  5th,  1896. 

"We  do  this  day  and  date  agree  with  one  another,  and  bind 
ourselves  on  our  sacred  words  and  honor,  that  we  will  stand 
together  on  any  and  all  propositions  of  legislation  that  may 
come  before  the  body  of  which  we  are  members,  namely,  the 
board  of  aldermen  of  the  city  of  Louisville;  that  we  will  so 
caucus  with  our  friend  J.  M.  McKnight,  and  act  wisely,  and 
secure  for  our  friends  an  equal  division  of  the  offices  and  any 
profit  that  may  arise  therefrom;  that  we,  as  men  and  mem- 
bers of  the  upper  board,  will  not  allow  the  mayor  to  force  upon 
us  any  appointments  that  we  do  not  deem  wise  and  to  our  in- 
terest, and  in  so  doing  will  not  act  the  first  night  of  a  meeting 
on  any  proposition  sent  in  by  the  mayor,  but  will  take  one 
.week  for  consideration  and  caucus. 


598  TITLE    INDEMNITY    BONDS. 

Now  we  have  calmly  considered  the  above,  and  do  again 
pledge  ourselves  one  to  the  other  before  subscribing  our  names 
this  day  and  date,  February  5th,  1896,  in  the  presence  of  one 
and  the  other. 

There  was  no  testimony  tending  to  show  knowledge  on  the 
part  of  the  bank,  or  any  of  its  officers  and  directors,  other  than 
McKnight,  of  the  purpose  for  which  this  $2,000  was  paid,  or 
of  the  relations  which  existed  between  McKnight  and  the  men 
to  whom  it  was  paid,  unless  such  knowledge  was  lawfully  in- 
ferable from  the  circumstances  above  stated  and  those  hereafter 
mentioned. 

On  the  night  of  the  occurrences  above  detailed  the  cashier  of 
the  bank  went  to  the  residence  of  his  father,  the  vice  president, 
and  told  him  of  the  keeping  open  of  the  bank  that  evening  and 
the  cashing  of  the  note.  The  next  morning  the  vice  president 
asked  McKnight  for  an  explanation  of  the  matter,  and  the  lat- 
ter responded  that  the  transaction  was  all  right,  and  that  the 
note  was  good,  and  that  it  would  be  guaranteed  by  men  of 
credit,  whom  he  named.  McKnight  also  said  that  he  would 
guarantee  the  payment  of  the  note;  that  the  parties  were 
obliged  to  have  the  money  that  night,  and  he  kept  the  bank 
open  to  let  them  have  it.  When  this  conversation  was  had 
McKnight  had  a  long  yellow  envelope  in  his  hand,  and  he  told 
the  vice  president  that  "he  had  a  document  there  in  his  pocket 
which  was  signed  by  those  fellows;"  that  "he  had  a  meeting 
upstairs  and  that  paper  was  signed,  and  he  would  not  sign  it 
for  the  city  of  Louisville;"  but  McKnight  did  not  mention  the 
names  of  the  persons  who  had  signed  it.  The  vice  president 
noticed  that  the  bank  was  to  get  no  interest  on  the  loan.  He 
informed  other  members  of  the  board  of  directors,  and  shortly 
afterwards  the  matter  was  brought  before  the  board  for  its  con- 
sideration. The  vice  president  reported  to  the  board  that  he 
had  made  some  investigation  and  could  not  find  that  two  alder- 
men who  had  signed  the  note  had  any  property,  and  he  was 
unable  to  say  whether  or  not  they  were  good.  McKnight  made 
the  same  statement  to  the  board  that  he  had  made  to  the  vice 
president,  though  to  neither  the  vice  president  nor  the  bank 
was  any  explanation  made  about  the  interest  feature  of  the 
transaction.  He  assured  the  directors  that  the  note  was  good. 
This  explanation  satisfied  the  board,  and  they  passed  the  note. 
One  Jacob  Reisch,  a  director  at  the  time,  testified  on  the  wit- 


FIDELITY  CO.  v.  COURTNEY.  599 

ness  stand,  however,  that  some  short  time  after  the  execution 
of  this  note  the  vice  president  told  him  what  he  had  learned 
about  the  matter,  and  said  to  him,  that  the  money  was  used 
in  the  mayor's  race.  This  latter  statement  the  vice  president 
denied  having  made.  We  quote  from  the  bill  of  exceptions  the 
following  statement: 

"There  was  also  evidence  tending  to  show  that  J.  M.  Mc- 
Knight  was  president  of  the  bank,  and  the  other  officers  of  the 
bank,  including  the  directory,  had  entire  confidence  in  his  hon- 
esty and  integrity  up  to  the  time  the  bank  was  closed;  that 
none  of  them  had  any  knowledge  that  any  act  of  his,  in  the 
management  of  said  bank,  was  fraudulent  or  dishonest,  until 
after  the  closing  of  the  bank;  that  said  bank  had  a  discount 
committee  who  regularly  examined  and  passed  on  the  papers 
of  the  bank,  as  required  of  such  committee,  and  the  directory 
of  said  bank  undertook  to  make  a  monthly  investigation — some- 
times twice  a  month — of  the  affairs  of  said  bank,  and  re- 
quired the  president  to  go  through  same  with  them  and  make 
a  full  report  thereon;  that  some  of  the  directors  were  in  the 
bank  almost  daily  inspecting  its  affairs,  and  that  they  did  at 
all  times  observe  due  and  customary  supervision  over  said 
president  for  the  prevention  of  default;  that  none  of  the  offi- 
cers of  said  bank,  including  the  directory,  had  any  knowledge 
of  the  various  checks  set  up  in  the  petition  as  fraudulent,  and 
that  were  charged  to  the  account  of  the  other  parties  than  those 
drawing  them,  or  on  whom  they  were  drawn,  except  the  clerks 
who  charged  them  up  to  said  account  as  stated,  and  there  was 
evidence  tending  to  show  that  they  charged  them  up  to  such 
accounts  by  the  direction  of  McKnight,  the  president,  and  ex- 
cept, further,  R.  E.  Reutlinger,  the  cashier  and  teller  of  said 
bank,  knew  of  said  checks  when  they  came  into  said  bank,  and 
was  instructed  to  hold  them  as  cash  items  by  McKnight,  but 
further  than  this  he  had  no  knowledge  [of  them]." 

Now,  with  this  state  of  the  record  in  mind,  we  come  to  con- 
sider the  statements  in  the  certificate  signed  by  the  cashier, 
on  May  29,  1896,  in  answer  to  the  letter  of  the  surety  company, 
shortly  before  the  bond  was  renewed,  to  determine  whether 
prejudicial  error  arose  from  rejecting  the  certificate.  The  cer- 
tificate stated  that  the  president  "has  performed  his  duties  in 
an  acceptable  and  satisfactory  manner,  and  we  know  of  no 
reason  why  the  guarantee  bond  should  not  be  continued." 


600  TITLE    INDEMNITY   BONDS. 

There  was  certainly  proof  showing  that  the  action  of  the  presi- 
dent as  to  the  three  checks,  and  the  charging  them  to  accounts 
on  the  books  of  the  bank,  deceived  the  officers  of  the  bank  and 
caused  them  to  be  satisfied  with  the  transactions.  Certainly, 
also,  there  was  uncontradicted  evidence  establishing  that  the 
explanation  given  by  McKnight  of  the  discount  of  the  $2,000 
note  satisfied  the  directors.  There  was  no  justification  in  the 
evidence  on  these  subjects  to  take  the  case  from  the  jury  and 
instruct  a  verdict  for  the  defendant  upon  the  theory  that  hi 
and  of  themselves  the  transactions  were  of  such  a  character 
as  to  preclude  the  possibility  of  a  belief  in  the  sufficiency  of 
the  explanation  made  by  the  president,  however  apparently 
reasonable  those  explanations  may  have  been,  and  however  hon- 
est may  have  been  the  belief  in  their  truth.  This  being  so, 
it  follows  that  the  only  basis  upon  which  it  could  have  been 
found  that  the  bank  was  dissatisfied  was  the  induction  from  the 
facts  and  circumstances  that  the  bank  knew  of  the  fraud  which 
the  transactions  were  intended  to  effectuate.  And  this  latter 
view  was  stated  by  the  court  to  the  jury.  Referring  to  the  al- 
leged fraudulent  checks  and  drafts  of  the  president,  the  court 
said: 

''The  mere  fact  of  drawing  for  more  than  you  have  got  in 
the  bank  without  any  fraudulent  intent  in  that  mere  transac- 
tion would  hardly  be  a  fraudulent  act  within  the  meaning  of 
this  bond. 

"Now,  I  suppose  in  this  case,  if  the  bank  had  known  that 
McKnight  was  making  these  drafts  for  these  various  fraudu- 
lent purposes,  such  as  buying  up  councilmen,  buying  up  alder- 
men, paying  his  own  personal  debts;  if  the  bank  had  known 
that  and  consented  to  it, — there  would  not  have  been  a  fraud- 
ulent act  by  McKnight  for  which  the  bank  could  recover  against 
this  company. 

"But  if  you  believe  from  the  evidence  that  the  bank  did  not 
know  of  the  fraudulent  purposes  for  which  the  overdrafts  were 
made,  if  the  overdrafts  were  made  in  connection  with  this  mat- 
ter,— if  you  believe  the  bank  did  not  know  the  fraudulent  pur- 
poses,— then  that  changes  the  result;  because  if  the  bank  did 
not  know  and  still  consented  to  it,  it  would  not  relieve  the  act 
of  McKnight  from  the  character  of  being  a  fraudulent  act. 
So  that,  as  I  view  the  case — you  must  remember,  however,  that 
you  are  the  sole  judges  of  the  evidence  in  this  case  and  its 


FIDELITY  CO.  v.  COURTNEY.  601 

credibility — as  I  view  this  case,  however,  there  would  be  no 
fraudulent  acts  upon  McKnight's  part  (limiting  my  observa- 
tions now  to  the  overdrafts),  there  would  be  no  fraudulent 
acts  upon  his  part  merely  in  an  overdraft,  if  there  were  no 
fraudulent  intent  behind  it  which  was  concealed  from  the 
bank." 

Again,  the  court — referring  to  the  $2,000  note  transaction — 
said: 

"If  you  believe  from  the  evidence  that  the  bank  did  know 
of  this  fraudulent  purpose,  and  that  this  default  of  McKnight  's, 
this  fraudulent  act  of  McKnight's,  in  getting  these  $2,000,  was 
known  to  the  bank  at  the  time,  then  I  instruct  you  that  all  of 
the  liability  of  the  defendant  in  this  case  would  cease  then, 
that  being  the  earliest,  or  one  of  the  earliest,  if  not  the  earliest, 
of  all  these  transactions.  If  you  believe  from  the  evidence  that 
this  transaction  was  known  and  condoned  by  the  bank  at  the 
time,  before  these  other  transactions  occurred,  then  the  defend- 
ant in  this  case  is  not  liable." 

In  other  words,  reiterating  in  a  somewhat  different  form 
the  proposition  previously  stated,  if  the  certificate  transmitted 
by  the  cashier  to  the  surety  company  had  been  received  in 
evidence  it  would  not  alone  have  availed  as  a  defense,  because 
further  proof  would  have  been  required  showing  the  falsity  of 
the  statements  contained  in  the  certificate.  In  view,  however, 
of  the  uncontradicted  testimony  tending  to  show  that  in  the 
course  of  the  transactions  relied  upon  the  president  had,  either 
by  conduct  or  explanation,  produced  the  impression  on  the 
bank  that  the  transactions  were  bona  ftde,  and  therefore  re- 
lieved the  bank  from  any  dissatisfaction  as  to  the  transactions, 
it  must  follow  that  the  falsity  of  the  certificate  could  alone 
have  been  inferred  by  concluding  either  that  the  transactions 
in  and  of  themselves  were  of  such  a  character  that,  as  a  matter 
of  law,  no  explanations  made  of  them  by  the  president  could 
have  justified  the  bank  in  being  satisfied  on  the  subject,  or 
that  the  surrounding  circumstances  were  such  as  to  authorize 
the  jury  to  infer  that  the  bank  must  have  known  of  the  fraud, 
and  therefore  to  find  that  the  bank  could  not  possibly  have 
been  satisfied  with  the  conduct  of  the  president.  But  the  first 
hypothesis  we  have  pointed  out  was  inadmissible.  The  second 
was  left  to  the  jury  to  determine,  since  the  charge  of  the  court 
was  that  if  the  jury  could  deduce  from  the  proof  knowledge  on 


602  TITLE    INDEMNITY    BONDS. 

the  part  of  the  bank  of  the  fraud  of  the  president,  the  surety 
company  would  not  be  liable  on  the  bond.  As,  therefore,  the 
very  question  which  the  jury  would  have  been  called  upon  to 
determine  if  the  certificate  had  been  received  in  evidence  was 
fully  submitted  to  them  and  was  necessarily  negatived  by  their 
verdict,  no  foundation  exists  for  holding  that  prejudicial  error 
resulted  from  excluding  the  certificate. 

5.  The  trial  court  erred  in  not  instructing  the  jury  that  the 
knowledge  possessed  by  an  officer  or  director  of  the  bank,  of 
the  fraudulent  purposes  of  McKnight,  though  such  knowledge 
had  not  been  communicated  to  the  bank,  should  be  treated  as 
the  knowledge  of  the  bank;  and  also  erred  in  not  instructing 
the  jury  that  the  knowledge  which  any  officer  or  director  of 
the  bank  might  have  acquired  of  the  fraudulent  conduct  of 
McKnight,  if  such  officer  or  director  had  exercised  customary 
supervision,  should  be  imputed  to  the  bank. 

The  question  which  these  propositions  embrace  were  raised 
by  the  exceptions  taken  to  certain  portions  of  the  charge  to  the 
jury,  referred  to  in  the  record  as  instructions  Nos.  5,  6,  and  7. 
In  instruction  No.  5  the  court  told  the  jury,  in  general  terms, 
that  the  bank,  under  the  stipulations  contained  in  the  bond, 
owed  to  the  surety  the  duty  of  exercising  due  and  customary 
supervision  over  McKnight  to  prevent  the  commission  by  him 
of  fraudulent  acts,  and  further  instructed  that  if  the  bank  knew 
of  the  fraudulent  purposes  of  McKnight  in  connection  with  the 
drafts  and  checks  upon  which  recovery  was  sought,  the  surety 
would  not  be  liable.  Exception  was  taken  to  this  instruction, 
on  the  ground  that  it  "did  not  submit  correctly  to  the  jury 
consideration  of  knowledge  on  the  part  of  the  officers  or  direc- 
tors of  the  bank  other  than  McKnight,  which  they  had,  or 
would  have  had,  if  customary  supervision  had  been  exercised." 
Instruction  No.  6,  and  the  objection  made  to  it,  reads  as  fol- 
lows: 

"I  do  not  think  that  the  knowledge  of  a  cashier  of  a  bank, 
speaking  generally,  is  the  knowledge  of  the  bank  as  to  any 
matter  that  does  not  come  within  the  customary  or  ordinary 
duties  of  a  cashier  or  those  which  have  been  specially  imposed 
upon  him  by  the  action  of  the  bank.  I  do  not  think  Mr.  R.  E. 
Reutlinger,  in  this  case,  in  respect  to  any  matter  which  he 
knew  or  could  do,  represented  the  bank,  if  it  was  outside  of 
his  ordinary  duties;  and  I  do  not  recall  anything  that  he  knew, 


FIDELITY  CO.  v.  COURTNEY.  G03 

so  far  as  the  proof  shows,  that  would  in  any  wise  affect  the 
liability  of  the  defendant  in  tips  case." 

Objection  was  made  to  the  foregoing  portion  of  the  charge, 
on  the  ground  that  the  knowledge  of  the  cashier  of  the  acts  of 
McKnight  in  respect  to  his  overdrafts,  his  transactions  in  con- 
nection with  the  $2,000  note  signed  by  the  two  aldermen  and 
with  the  checks  to  Edmunds,  and  the  several  checks  for  Mc- 
Knight's  individual  account,  was  the  knowledge  of  the  bank, 
and  that  the  jury  should  have  been  so  told. 

Instruction  No.  7  dealt  with  the  $2,000  note  transaction.  In 
effect,  the  jury  were  instructed  that  the  knowledge  of  the  cash- 
ier acquired  in  the  performance  of  his  duties  might  be  imputed 
to  the  bank,  but  that  the  vice  president  or  an  individual  di- 
rector did  not  hold  such  an  official  relation  to  the  bank  as  that 
his  knowledge  of  wrongdoing  by  McKnight,  if  not  communi- 
cated to  the  bank,  could  be  treated  as  the  knowledge  of  the 
bank. 

We  do  not  deem  it  necessary  to  analyze  the  instructions  given 
by  the  court  for  the  purpose  of  determining  whether  they  were 
in  all  respects  accurate,  because  we  are  of  the  opinion  that  if 
the  court  in  any  wise  erred  it  was  in  giving  instructions  which 
were  more  favorable  to  the  defendant  surety  than  was  justified 
by  the  principles  of  law  applicable  to  the  case. 

It  is  well  settled  that,  in  the  absence  of  express  agreement, 
the  surety  on  a  bond  given  to  a  corporation,  conditioned  for 
the  faithful  performance  by  an  employee  of  his  duties,  is  not 
relieved  from  liability  for  a  loss  within  the  condition  of  the 
bond  by  reason  of  the  laches  or  neglect  of  the  board  of  direc- 
tors, not  amounting  to  fraud  or  bad  faith,  and  that  the  acts  of 
ordinary  agents  or  employees  of  the  indemnified  corporation, 
conniving  at  or  co-operating  with  the  wrongful  act  of  the 
bonded  employee,  will  not  be  imputed  to  the  corporation. 
United  States  v.  Kirkpatrick  (1824),  9  Wheat.  720,  736,  6  L. 
cd.  199,  203;  Minor  v.  Mechanics'  Bank  (1828),  1  Pet.  46,  7  L. 
ed.  47;  Taylor  v.  Bank  of  Kentucky  (1829),  2  J.  J.  Marsh.  564; 
Amherst  Bank  v.  Root  (1841),  2  Met.  522;  Louisiana  State 
Bank  v.  Ledoux  (1848),  3  La.  Ann.  674;  Pittsburg,  Ft.  W.  & 
C.  P.  Co.  v.  Shaeffer  (1868),  59  Pa.  350,  356;  Atlas  Bank  v. 
Brownell  (1869),  9  R.  I.  168,  11  Am.  Rep.  231.  The  doctrine 
of  these  cases  is  thus  epitomized  in  59  Pa.  357: 

"Corporations  can  act  only  by  officers  and  agents.     They  do 


604  TITLE    INDEMNITY    BONDS. 

not  guarantee  to  the  sureties  of  one  officer  the  fidelity  of  the 
others.  The  rules  and  regulations  which  they  may  establish 
in  regard  to  periodical  returns  and  payments  are  for  their  own 
security,  and  not  for  the  benefit  of  the  sureties.  The  sureties, 
by  executing  the  bond,  became  responsible  for  the  fidelity  of 
their  principal.  It  is  no  collateral  engagement  into  which  they 
enter,  dependent  on  some  contingency  or  condition  different 
from  the  engagement  of  their  principal.  They  become  joint 
obligors  with  him  in  the  same  bond,  and  with  the  same  condi- 
tion underwritten.  The  fact  that  there  were  other  unfaithful 
officers  and  agents  of  the  corporation,  who  knew  and  connived 
at  his  infidelity,  ought  not  in  reason,  and  does  not  in  law  or 
equity,  relieve  them  from  their  responsibility  for  him.  They 
undertake  that  he  shall  be  honest,  though  all  around  him  are 
rogues.  Were  the  rule  different,  by  a  conspiracy  between  the 
officers  of  a  bank  or  other  moneyed  institution,  all  their  sure- 
ties might  be  discharged.  It  is  impossible  that  a  doctrine  lead- 
ing to  such  consequences  can  be  sound.  In  a  suit  by  a  bank 
against  a  surety  on  the  cashier's  bond,  a  plea  that  the  cashier's 
defalcation  was  known  to  and  connived  at  by  the  officers  of  the 
bank,  was  held,  to  be  no  defense.  Taylor  v.  Bank  of  Kentucky, 
2  J.  J.  Marsh.  564." 

So,  also,  in  3  La.  Ann.  674,  the  court,  after  suggesting  the 
distinction  between  the  knowledge  of  the  governing  body  of  a 
bank,  the  board  of  directors,  of  the  default  of  a  bonded  em- 
ployee, and  the  knowledge  of  such  default  by  another  officer 
or  employee,  not  communicated  to  the  board,  thus  tersely  stated 
the  applicable  doctrine  (p.  684)  : 

"It  cannot  be  said  that  if  one  servant  of  a  bank  neglects  his 
duty,  and  by  his  carelessness  permits  another  servant  of  the 
bank  to  commit  a  fraud,  the  surety  of  the  fraudulent  servant 
shall  be  thereby  discharged. ' ' 

And  see  American  Surety  Co.  v.  Pauly,  170  U.  S.  156,  157, 
42  L.  ed.  986,  18  Sup.  Ct.  Rep.  552,  and  cases  cited.  In  other 
words,  the  principle  of  law  discussed  in  the  case  of  The  Dis- 
tilled Spirits,  11  "Wall.  356,  sub  nom.  Harrington  v.  United 
States,  20  L.  ed.  167,  viz.,  that  the  knowledge  of  an  agent  is  in 
law  the  knowledge  of  his  principal,  is  intended  for  the  protec- 
tion of  the  other  party  (actually  or  constructively)  to  a  trans- 
action for  and  on  account  of  the  principal  had  with  such  agent. 
In  the  very  nature  of  things,  such  a  principle  does  not  obtain 


FIDELITY  CO.  v.  COURTNEY. 

in  favor  of  a  surety  who  has  bonded  one  officer  of  a  corpora- 
tion, so  as  to  relieve  him  from  the  obligations  of  his  bond,  by 
imputing  to  the  corporation  knowledge  acquired  by  another 
employee  subsequent  to  the  execution  of  the  bond  (and  from 
negligence  or  wrongful  motives,  not  disclosed  to  the  corpora- 
tion), of  a  wrong  committed  by  the  official  whose  faithful  per- 
formance of  duty  was  guaranteed  by  the  bond.  As  the  rule 
of  imputation  to  the  principal  of  the  knowledge  of  an  agent 
does  not  apply  to  such  a  case,  it  must  follow  that  it  can  only 
obtain  as  a  consequence  of  an  express  provision  of  the  contract 
of  suretyship.  Was  there  such  a  provision  in  the  bond  now 
under  consideration? 

Now  the  clause  of  the  bond  sued  on,  and  as  to  which  the 
court  was  instructing  the  jury  in  the  portions  of  the  charge 
under  consideration,  is  as  follows: 

"  'That  the  employer  shall  observe,  or  cause  to  be  observed, 
due  and  customary  supervision  over  the  employee  for  the  pre- 
vention of  default,  and  if  the  employer  shall  at  any  time  during 
the  currency  of  this  bond  condone  any  act  or  default  upon  the 
part  of  the  employee  which  would  give  the  employer  the  right 
to  claim  hereunder,  and  shall  continue  the  employee  in  his 
service  without  written  notice  to  the  company,  the  company 
shall  not  be  responsible  hereunder  for  any  default  of  the  em- 
ployee which  may  occur  subsequent  to  such  act  or  default  so 
condoned.'  ' 

Manifestly,  this  stipulation  is  not  fairly  subject  to  the  con- 
struction that  it  was  the  intention  that  the  neglect  or  omission 
of  a  minority  in  number  of  the  board  of  directors  or  the  neg- 
lect or  omission  of  subordinate  officers  or  agents  of  the  bank 
should  be  treated  as  the  neglect  or  omission  of  the  bank.  The 
provision  is  not  that  a  minority  in  number  of  the  board  of  di- 
rectors or  that  subordinate  officers  or  agents  would  exercise 
due  and  customary  supervision,  and  would  not  condone  a  de- 
fault of  the  bonded  employee  or  retain  him  in  his  employment 
after  the  commission  of  a  default,  but  the  agreement  is  that 
the  bank  would  do  or  not  do  these  things.  This  in  reason  im- 
ports that  the  things  forbidden  to  be  done  or  agreed  to  be  done 
were  to  be  either  done  or  left  undone  by  the  bank  in  its  corpo- 
rate capacity,  speaking  and  acting  through  the  representative 
agents  empowered  by  the  charter  to  do  or  not  to  do  the  things 
pointed  out.  To  hold  to  the  contrary  would  imply  that  the 


606  TITLE    INDEMNITY    BONDS. 

bond  forbade  the  doing  of  an  act  by  a  person  who  had  not 
power  to  perform  or  commanded  performance  by  one  who  could 
not  perform.  Assuredly,  therefore,  the  conditions  embodied  in 
the  stipulation  to  which  we  have  referred,  both  as  to  doing  and 
nondoing,  contemplated  in  the  reason  of  things  the  execution 
of  the  duties  which  the  contract  imposed  on  the  bank,  either 
by  the  governing  body  of  the  bank,  its  board  of  directors,  or 
by  a  superior  officer,  such  as  the  president  of  the  bank,  having 
a  general  power  of  supervision  over  the  business  of  the  corpo- 
ration, and  vested  with  the  authority  to  condone  the  wrong- 
doing or  to  discharge  a  faithless  employee.  That  is  to  say,  the 
stipulation  in  all  its  aspects  undoubtedly  related  to  the  bank, 
acting  through  its  board  of  directors  or  through  an  official  who, 
from  the  nature  of  his  duties,  was  in  effect  the  vice  principal 
of  the  bank.  The  decision  in  Guarantee  Co.  of  N.  A.  v.  Me- 
chanics' Sav.  Bank  &  T.  Co.,  183  U.  S.  402,  ante,  124,  22  Sup. 
Ct.  Rep.  124,  it  may  be  remarked,  in  passing,  is  not  antagonis- 
tic to  the  views  we  have  just  expressed,  because  in  that  case 
all  the  information  which  was  held  imputable  to  the  bank  had 
been  communicated  to  the  president  of  the  bank. 

Now,  applying  the  principles  previously  expounded  to  the 
ease  in  hand,  it  is  evident  that  the  court  rightly  refused  to 
instruct  the  jury  that  the  mere  knowledge  of  one  or  more 
directors,  less  than  a  majority  of  the  board,  and  of  the  vice 
president  of  the  bank,  of  the  default  of  the  president,  was 
imputable  to  the  bank.  Indeed,  as  we  have  previously  said, 
when  the  charge  which  the  court  gave  is  considered,  it  is  ap- 
parent that  the  court  went  quite  as  far  as  the  law  warranted, 
in  favor  of  the  defendant,  since  the  court  instructed  that  knowl- 
edge acquired  by  the  cashier  in  the  course  of  the  business  of 
the  bank,  and  not  communicated  by  him  to  the  board  of  direc- 
tors, should  be  regarded  as  the  knowledge  of  the  bank. 

6.  The  court  of  appeals  erred  in  affirming  the  action  of  the 
trial  court  in  instructing  the  jury  that  the  carelessness  of  the 
directors  in  the  management  of  the  bank  was  not  an  issue  for 
them  to  consider. 

In  considering  the  clause  of  the  charge  to  the  jury  which 
provided  that  "due  and  customary  supervision  over  the  em- 
ployee" should  be  observed  "for  the  prevention  of  default," 
the  trial  court  told  the  jury  that  it  imported  ' '  a  reasonable  vigi- 
lance upon  the  part  of  the  bank  to  prevent  defaults,"  that  is, 


STENSGAARD  v.  ST.  PAUL  ETC.  CO.  607 

to  prevent  the  commission  of  fraudulent  acts  by  McKnight. 
To  instruct  the  jury  in  broad  terms  that  if  they  found  that 
the  directors  were  careless  in  the  management  of  the  bank 
generally  they  should  find  for  the  defendant,  could  only  have 
served  to  mislead.  The  court  did  not  err  in  refusing  the  re- 
quested instruction. 

Judgment  affirmed. 

Mr.  Justice  GRAY  and  Mr.  Justice  BREWER  did  not  hear  the 
argument,  and  took  no  part  in  the  decision  of  this  cause. 


STENSGAARD  v.  ST.  PAUL  REAL  ESTATE  TITLE  INS. 

CO.    1892. 

50  Minn.  429;    52  N.  W.  Rep.  910. 

Appeal  from  district  court,  Ramsey  county;    KELLY,  Judge. 

GILPILLAN,  C.  J.  This  is  an  action  upon  a  policy  issued  to 
plaintiff,  insuring  the  title  to  real  estate.  The  policy  refers 
to  a  written  application,  and  provides  that  "any  untrue  state-  i 
ment  or  suppression  of  a  material  fact  affecting  the  title,  or 
any  untrue  answer  to  questions  contained  in  said  above  appli- 
cation, by  the  insured  or  his  agent,  shall  avoid  this  policy, 
(excepting  as  against  a  mortgagee  not  privy  thereto^"  The  ap- 
plication contains  this  provision:  "It  is  agreed  that  the  fol- 
lowing statements  are  correct  and  true,  to  the  best  of  the 
applicant 's  knowledge  and  belief,  and  that  any  false_  statement  V 
or  any  suppression  of^  material  information  shall  avoid  the  ^\ 
policy*."  Then  follow  questions  by  the  company  and  answers 
by  The  insured,  among  which  was:  ^Question.  "Last  price  paid 
for  the  property?"  Answer.  "ftry)0p."  The  application 
was  signed  by  the  insured.  The  breach  in  the  policy  consisted 
in  this.  The  land  belonged  to  one  Uihlein,  and  immediately 
prior  to  the  issuance  of  the  policy  the  plaintiff  purchased  and 
received  a  conveyance  from  a  person  whom  he  supposed  to  be 
Uihlein,  who,  however,  was  not  Uihlein,  but  falsely  personated 
him  and  forged  the  deed,  wherefore  the  plaintiff  got  no  title. 
The  defense  was.  based  on  the  alleged  falsity  of  the  above  an- 
swer, to  the  knowledge  of  plaintiff.  There  is  also  a  counter- 


608  TITLE    INDEMNITY    BONDS. 

claim  based  on  allegations  that  after  the  policy  issued  the 
plaintiff  issued  to  a  bona  fide  mortgagee,  not  privy  to  the  false 
answer,  a  note  for  ^4.500^  and  a  mortgage  on  the  land  to  se- 
cure it,  and  as  further,  security  assigned  the  policy  to  such 
mortgagee,  and  that  on  discovering  that  plaintiff's  deed  was 
forged  the  defendant  paid  the  note  and  mortgage,  and  the  same 
were  assigned  by  the  holder  to  it.  The  flonrt  below  determined, 
in  effect,  as  matter  of  law,  that  the  above  answer  was  material, 
and  that,  if  plaintiff  knew  it  to  be  false,  it  avoided  the  policy. 
The  plaintiff  insistis  that  it  was  not  material,  and  that  at  any 
rate  its  materiality  was  a  question  of  fact  to  be  determined 
by  the  jury.  In  the  first  place  the  answer  to  the  question, 
"Last  price  paid?"  was  a  statement  of  fact,  and  not  the  ex- 
pression of  an  opinion,  as  a  statement  of  value  generally  is. 
In  the  second  place  the  effect  of  falsity  in  the  statements  on 
the  validity  of  the  contract  is  not  made  to  depend  on  the  in- 
tent with  which  the  statement  is  made,  as  that  the  intent  shall 
be  fraudulent,  but  on  whether  true  or  false,  to  the  best  of  the 
applicant's  knowledge  and  belief.  Where  the  contract  itself 
does  not  stipulate  the  effect  that  a  particular  false  statement 
or  representation  shall  have  on  the  contract,  or  where  it  stipu- 
lates merely  that  the  misrepresentation  or  suppression  of  a 
material  fact  shall  avoid  it,  the  fact  misrepresented  or  sup- 
pressed must  have  been  material,  as  an  inducement  to  enter 
into  the  contract;  and  as  the  materiality  must  be  shown  by 
matters  outside  the  terms  of  the  contract,  it  is  a  question  of 
fact.  But  the  parties  may  by  their  contract  determine  the 
materiality  for  themselves,  as  where  they  stipulate  that  if  a 
statement  of  fact  made  by  one  of  them,  and  set  forth  in  the 
contract,  be  false,  it  shall  avoid  the  contract.  In  such  case 
the  statement  is  in  effect  a  warranty.  Whether  they  have  made 
the  statement  material,  and  in  effect  a  warranty,  is  a  question 
for  the  court,  to  be  determined  by  an  interpretation  of  the 
contract.  The  court  below  correctly  decided  the  question  in 
this  ease. 

The  "last  price"  referred  to  in  the  application,  question  and 
answer,  was  the  price  paid  by  ^plaintiff  to  the  person  who  exe- 
cuted the  deed  to  him.  The  question  called  for  a  statement 
of  the  actual,  and  not  merely  a  nominal,  price, — of  the  price 
in  money  or  money's  worth;  and  from  the  answer  the  defend- 
ant could  understand  nothing  else  but  that  the  sum  stated 


STENSGAARD  v.  ST.  PAUL  ETC.  CO.  609 

was  the  actual  money  price.  The  evidence  of  the  plaintiff 
showed  beyond  dispute  that  in  the  deal  with  the  person  who 
personated  Uihlein,  and  which  resulted  in  the  deed  to  plaintiff, 
no  money  price  was  agreed  on ;  that  it  was  not  a  sale  for  money 
or  money's  value,  but  that  the  plaintiff  holding  stock  in  a  min- 
ing corporation  to  the  amount,  par  value,  of  $15,000,  but 
which,  as  the  jury  find,  was  of  very  little  value  in  the  market 
in  St.  Paul,  where  the  transaction  was  had,  and  find  also  that 
plaintiff  knew  it  was  of  little  value,  he  transferred  the  stock 
and  paid  $3,000  in  cash  for  the  conveyance.  The  consideration 
stated  in  the  deed  was  $11,000,; — at  whose  suggestion  inserted, 
does  not  appear.  The  actual  consideration  was  the  stock,  of 
little  value,  as  plaintiff  knew,  and  the  $3,000.  It  is  not  a  case, 
as  plaintiff  contends,  of  a  price  agreed  on  for  the  land,  and  a 
subsequent  tender  on  the  one  part  and  acceptance  on  the  other 
of  property  in  lieu  of  money,  in  satisfaction  of  such  price.  It 
was  a  trade  of  stock  and  the  $3,000  for  the  land.  The  charge 
of  the  court  that  if  the  $3,000  and  the  fair  market  value  of  the 
stock  in  the  St.  Paul  market  aggregated  $11,000  the  jury  must 
find  the  answer  in  the  application  true,  and  that  if,  from  the 
evidence,  they  believed  that  plaintiff  did  not  know  the  stock 
to  be  of  little  value,  and  that  he  honestly  believed  he  was  pay- 
ing $11,000  in  full  cash  value,  and  that  the  other  party  accept- 
ed said  cash  and  stock  as  and  for  $11,000  in  money,  they  should 
find  the  said  answer  true,  was  certainly  sufficiently  favorable 
to  the  plaintiff.  If  there  was  any  error,  in  view  of  the  evidence 
in  the  case,  it  was  not  against  him.  After  the  jury  retired, 
they  returned  into  court,  and  the  court  reiterated  the  instruc- 
tions, of  which  the  substance  is  above  stated;  and  neither  party 
excepted.  Both  sides  appear  to  have  accepted  such  instruc- 
tions as  a  correct  statement  of  the  law  on  the  point.  The  in- 
structions requested  by  plaintiff  were,  so  far  as  they  stated  the 
law  correctly,  and  were  applicable  to  the  case,  and  not  likely 
to  mislead,  given  by  the  court  in  its  general  charge.  It  is  un- 
necessary to  go  over  them  in  detail,  further  than  to  say  this: 
that  if  in  any  case  the  receipt  in  the  deed  for  $11,000  could  be 
prima  facie  evidence,  as  against  one  not  a  party  to  the  deed, 
of  the  payment  of  that  sum  as  the  actual  price  of  the  land,  yet 
such  prima  facie  effect  was  so  completely  overthrown  by  the 
plaintiff's  own  testimony  that  it  would  have  been  idle,  and 
probably  misleading,  to  give  the  instructions  requested. 
39 


610  TITLE    INDEMNITY    BONDS. 

There  is  no  such  presumption  as  that  the  stock  of  a  corpora- 
tion is  worth  its  par  or  face  value.  The  certificate  of  stock  is 
not  an  obligation  to  pay  money,  which  is  presumed  to  be  worth 
its  face,  because  every  one  is  presumed  to  be  solvent  that  is  to 
have  sufficient  property  to  pay  all  his  debts.  It  is  only  evi- 
dence that  the  holder  has  an  interest  in  the  corporation,  and 
its  franchises  and  property,  in  the  proportion  that  the  stock 
hold  by  him  bears  to  the  whole  amount  of  stock;  but  it  is  no 
evidence  of  the  financial  standing  of  the  corporation,  nor  of 
the  value  of  its  franchises  and  property. 

The  plaintiff  having  admitted  in  his  reply  that  he  signed 
the  application,  and  not  having  alleged  that  when  signing  he 
did  not  know,  or  that  he  had  been  deceived  as  to,  its  contents, 
it  was,  though  the  answers  were  written  by  defendant's  secre- 
tary, as  much  his  act  as  though  he  had  written  the  answers 
himself.     The  evidence  offered  of  the  conversation  at  the  time 
between  him  and  the  secretary  was  therefore,  if  offered  to  vary 
the  effect  of  the  application,  incompetent;  if  offered  for  any 
other  purpose,  it  was  immaterial.     The  application  for  leave  to 
amend  his  reply  so  as  to  make  the  evidence  offered  admissible 
was  addressed  to  the  discretion  of  the  court,  and  allowing  him 
the  benefit  of  an  exception  to  the  ruling  of  the  court  on  the 
application,  (and  all  that  he  can  claim  upon  what  was  said  at 
the  time  is  thjit  by  reason  thereof  he  failed  to  take  an  excep- 
tion,) and  it  will  be  of  no  avail;  for  we  see  no  reason  to  think 
the  discretion  was  not  judiciously  exercised.     To  submit  any 
question  of  fact  for  a  specific  finding  upon  it  was  wholly  in  the 
discretion  of  the  trial  court,  so  it  was  not  error  for  it  to  de- 
cline to  submit  the  questions  prepared  by  plaintiff. 

The  note  of  plaintiff,  set  up  in  the  answer  by  defendant  as  a 
counterclaim,  and  upon  which  a  recovery  for  the  full  amount 
thereof  and  interest  is  demanded  by  the  answer,  was  not  due, 
by  its  terms,  till  June  22,  1892, — long  after  the  trial.  There 
was  no  demurrer  to  the  counterclaim.  The  reply  expressly  ad- 
mits the  making  of  the  note  and  mortgage.  The  note,  mort- 
gage, and  the  assignment  to  defendant  were  introduced  in 
evidence  by  defendant,  without  objection.  The  court  instruct- 
ed the  jury  that,  if  they  found  for  the  plaintiff,  they  should 
assess  the  damages  upon  the  policy  and  interest,  and  deduct 
therefrom  the  amount  of  the  note  and  mortgage  and  interest, 
and,  if  they  found  for  defendant,  they  should  render  a  verdict 


MARCH  v.  FIDELITY  CO.  611 

for  the  amount  of  the  note  and  interest.  No  exception  was 
taken  to  these  instructions.  From  first  to  last  of  the  record 
there  is  nothing  to  suggest  that  the  point  was  ever  made  in  the 
court  below  that  the  counterclaim  could  not  be  allowed  because 
the  note  was  not  yet  due.  We  think  that,  on  the  contrary,  it 
was  assumed,  and  the  cause  tried  and  submitted  to  the  jury, 
without  objection  by  anybody,  on  the  theory  that  the  counter- 
claim might  be  allowed.  That  being  so,  the  plaintiff  waived 
the  objection  that  the  claim  to  recover  on  the  note  was  prema- 
ture. 

There  are  several  minor  assignments  of  error,  none  of  them 
well  taken,  and  none  of  which  need  be  specifically  mentioned. 

Judgment  affirmed. 


CHAPTER  XXIII. 

RIGHTS  OF  CORPORATE  SURETIES. 

a.     Corporate  sureties  have  the  same  rights  under  the  law  as 
individual  sureties. 

MARCH  v.  FIDELITY  &  DEPOSIT  CO.     1894. 
79  Md.  309;  29  Ail.  Rep.  521. 

Appeal  from  orphans'  court  of  Baltimore  city. 

BRYAN,  J.  The  Fidelity  &  Deposit  Company  was  surety  on 
the  administration  bond  of  Philip  March,  Jr.  It  filed  a  peti- 
tion in  the  orphans'  court  of  Baltimore  city,  stating  that  it 
conceived  that  it  was  in  danger  of  suffering  loss  by  reason  of 
the  suretyship,  and  praying  that  the  administrator  might  be 
required  to  give  counter  security.  After  answer  by  the 
administrator  and  a  hearing,  the  court  passed  an  order  re- 
quiring him  to  give  counter  security.  The  administra- 
tor has  appealed.  Section  1,  art.  90,  of  the  Code  provides  that 
any  security  of  an  executor  or  administrator  who  shall  conceive 
himself  in  danger  of  suffering  from  the  suretyship  may  apply 
to  the  orphans'  court  which  granted  the  administration,  and 
the  court  may  require  the  administrator  to  give  counter  secu- 


612  RIGHTS  OF  CORPORATE  SURETIES. 

rity.  It  has  been  decided  that  the  words  of  the  Code  are  man- 
datory, and  that  they  impose  a  positive  and  absolute  duty  on 
the  orphans'  court  to  grant  the  relief  prayed.  Sifford  v.  Mor- 
rison, 63  Md.  14.  It  will  be  seen  that  the  language  of  the 
Code  is  very  comprehensive.  It  gives  the  right  to  proceed  in 
the  manner  mentioned  to  "any"  security.  It  includes  all,  and 
excludes  none.  The  security  in  the  present  case  must  be  en- 
titled to  the  benefit  of  this  provision  of  the  Code,  unless  the 
law  has  in  some  way  made  a  special  exception  against  it,  and 
denied  to  it  the  rights  which  belong  to  securities  in  general. 

We  will  consider  this  question.  The  act  of  1890  (chapter 
263)  conferred  on  the  Fidelity  &  Deposit  Company  of  Mary- 
land the  right  to  become  security  for  the  faithful  performance 
of  any  trust,  office,  duty,  contract,  or  agreement;  to  go  on  any 
appeal  or  other  bond;  and  to  "become  sole  security  in  all  cases 
where  by  law  two  or  more  sureties  are  required  for  the  faithful 
performance  of  any  trust  or  office."  When  the  statute  enabled 
this  corporation  to  become  a  surety,  it  described  a  relation  per- 
fectly well  known  and  understood  in  law.  Certain  rights, 
duties,  responsibilities,  and  functions  belong  to  the  condition  of 
suretyship,  and  they  are  all  necessarily  and  conclusively  im- 
plied when  one  lawfully  becomes  a  surety.  These  incidents 
must  attach  to  the  suretyship  in  this  case,  unless  the  statute 
which  authorized  it  establishes  and  defines  a  difference  between 
it  and  the  contracts  of  ordinary  sureties.  One  clause  of  the 
section  which  we  have  quoted  was  the  subject  of  a  good  deal 
of  comment  in  the  argument.  It  is  in  these  words:  "And  it 
shall  be  lawful  for  said  company  to  stipulate  and  provide  for 
indemnity  from  the  parties  aforesaid  for  whom  it  shall  so 
become  responsible,  and  to  enforce  any  bond,  contract,  agree- 
ment, pledge  or  other  security  made  or  given  for  that  pur- 
pose."  It  is  one  of  the  valuable  rights  of  a  surety  that  he 
may  recover  indemnity  from  his  principal  for  any  loss  sustain- 
ed by  his  defalcation  or  dereliction.  From  the  nature  and 
justice  of  the  case  the  law  conclusively  infers  a  contract  on 
the  part  of  the  principal  that  he  will  save  his  surety  harmless. 
The  clause  in  question  gives  this  corporation  the  means  of  forti- 
fying this  implied  contract,  and  making  it  more  effective,  by 
conferring  the  power  to  exact  security  for  its  performance. 
Everything  which  is  expressed  indicates  the  granting  of  a  priv- 
ilege, and  we  may  say  a  privilege  reasonable  and  proper.  Its 


AMERICAN  SURETY  CO.  v.  THURBER.  613 

exercise  could  do  wrong  to  no  one,  and  might  become  necessary 
for  protection  against  great  injustice.  There  is  no  indication 
of  a  purpose  to  withhold  or  abridge  any  right  whatsoever.  The 
general  statute  gives  the  surety  of  an  administrator  the  right 
to  obtain  from  the  orphans'  court  an  order  that  the  principal 
shall  give  counter  security.  Now,  it  would  be  very  unreason- 
able to  hold  that  this  right  is  constructively  annulled  by  the 
grant  of  a  privilege  which  shows  on  its  face  merely  the  ostensi- 
ble purpose  of  protecting  a  surety  against  wrong  and  injustice 
at  the  hands  of  his  principal.  It  would  produce  this  very  sin- 
gular and  anomalous  result:  that  a  grant  of  power  to  a  corpo- 
ration intended  to  furnish  it  with  the  means  of  protection  from 
loss  would,  by  legal  construction,  operate  so  as  to  prohibit  it 
from  seeking  in  a  court  of  justice  an  ordinary  remedy  pre- 
scribed for  the  prevention  of  wrongs.  We  are  of  opinion  that  the 
statute  of  1890  (chapter  263)  does  not  deny  to  this  corporation 
the  rights  belonging  to  other  sureties,  and  we  shall  therefore 
affirm  the  decree  of  the  orphans'  court. 

Affirmed,  with  costs. 


AMERICAN  SURETY  COMPANY  v.  THURBER.    1900. 
162  N.  F.  244;  56  N.  E.  Rep.  631. 

Appeal  from  supreme  court,  appellate  division,  Second  de- 
partment. 

VANN,  J.  This  proceeding  was  commenced  by  an  application 
made  by  the  American  Surety  Company  of  New  York,  under 
section  812  of  the  Code  of  Civil  Procedure,  to  be  released  as 
surety  upon  the  bond  of  Fannie  C.  Thurber,  the  committee  of 
Edmund  G.  Thurber,  an  incompetent  person.  In  October, 
1897,  Edmund  G.  Thurber  was  adjudged  a  lunatic,  and  Fannie 
C.  Thurber  was  appointed  his  committee,  upon  giving  a  bond 
in  the  usual  form,  in  the  penalty  of  $50,000.  The  bond  was 
given  on  the  20th  of  August,  1898 ;  the  American  Surety  Com- 
pany signing  the  same  as  surety  in  consideration  of  $50  paid 
down  by  Mrs.  Thurber,  and  the  agreement  to  pay  $25  a  year 
annually  thereafter  while  the  bond  was  in  force.  Before  sign- 
ing the  bond  the  surety  company  accepted  a  contract  from 
Mrs.  Thurber,  whereby  she  agreed,  among  other  things,  to  hold 


614  EIGHTS  OF  CORPORATE  SURETIES. 

the  company  harmless,  notify  it  of  suits,  and  deposit  any 
moneys  coming  into  her  hands  in  an  accredited  trust  company; 
the  same  to  be  withdrawn  only  upon  checks  signed  by  her  as 
committee,  and  countersigned  by  the  surety  company  or  its 
representative.  It  was  also  provided  that  "this  agreement 
shall  not,  nor  shall  acceptance  by  the  surety  of  payment  for  its 
suretyship,  nor  agreement  to  accept,  nor  acceptance  by  it  at 
any  time,  of  other  security,  in  any  way  abridge,  defer,  or  limit 
its  right  to  be  subrogated  to  any  right  or  remedy,  or  limit  or 
abridge  any  right  or  remedy,  which  the  surety  otherwise  might 
or  may  have,  acquire,  exercise,  or  enforce."  In  February, 
1899,  while  the  bond  was  still  in  force,  an  order  was  granted, 
upon  the  petition  of  the  company,  requiring  Mrs.  Thurber  to 
show  cause  why  she  should  not  furnish  new  sureties,  and  ren- 
der an  account  as  committee,  or  be  removed  from  that  position. 
She  tried  to  show  cause  by  presenting  an  affidavit  establishing 
perfect  regularity  of  procedure  on  her  part  as  committee,  and 
alleging  that  the  company  was  acting  through  ulterior  motives 
induced  by  the  lunatic's  relatives,  who  had  refused  to  recog- 
nize her  as  his  wife,  or  their  child  as  his  legitimate  son.  She 
charged  that  their  object  was  to  prevent  her  from  prosecuting 
certain  actions  to  set  aside  contracts  made  by  the  lunatic,  in 
which  one  of  their  number  was  interested.  She  made  out  a 
strong  case  of  hardship  and  injustice,  which  would  have 
authorized  the  court,  if  its  power  is  discretionary,  to  exercise 
its  discretion  by  denying  the  motion.  The  special  term  denied 
the  application  upon  the  ground  that  section  812  of  the  Code 
was  not  intended  to  apply  to  the  case  of  a  surety  for  considera- 
tion, as  distinguished  from  a  gratuitous  surety.  Among  the 
recitals  of  the  order,  as  finally  entered,  is  the  statement  that  the 
company,  on  the  argument  of  the  motion,  offered  to  return  to 
Mrs.  Thurber  the  premium  paid  by  her.  The  appellate  division 
stated  in  its  order  of  affirmance  that  it  was  "made  upon  the 
ground  that  the  provisions  of  section  812  of  the  Code  of  Civil 
Procedure,  providing  for  the  release  or  discharge  of  sureties 
from  further  liability,  or  liability  for  a  subsequent  act  or  de- 
fault of  the  principal,  do  not  apply  to  this  case;  the  surety 
here  being  a  corporation  organized  for  surety  purposes,  and 
having  become  surety  herein  for  compensation,  and  pursuant 
to  a  contract  appearing  on  the  record."  As  it  appears  in  the 
order  appealed  from  that  the  determination  of  the  appellate 


AMERICAN  SURETY  CO.  v.  THURBBR.  615 

division  was  based  on  a  want  of  power  to  grant  the  application, 
a  question  of  law  is  presented  which  it  is  our  duty  to  review  even 
if  the  courts  below  might  have  denied  the  application  in  the 
exercise  of  discretion.     Tolman  v.  Railroad  Co.,  92  N.  Y.  354. 
The  order  states,  in  effect,  that  the  court  simply  decided  the 
question  of  power,  without  considering  the  question  of  discre- 
tion.    The  power  of  the  court  depends  on  the  construction  of 
section  812  of  the  Code  of  Civil  Procedure,  which  occurs  in  an 
article  entitled,   "General   Regulations  Respecting  Bonds   and 
Undertakings."     It  is  provided  by  section  810,  which  is  the  be- 
ginning of  the  article,  that  a  bond  or  undertaking  given  in  an 
action  or  special  proceeding  must  be  acknowledged  or  proved 
and  certified  in  like  manner  as  a  deed  to  be  recorded.     Sec- 
tion 811  provides,  among  other  things,  that  "the  execution  of 
any  such  bond  or  undertaking  by  any  fidelity  or  surety  com- 
pany authorized  by  the  law  of  this  state  to  transact  business, 
shall  be  equivalent  to  the  execution  of  said  bond  or  undertak- 
ing by  two  sureties,  and  such  company,  if  excepted  to,  shall 
justify  through  its  officers  or  attorney  in  the  manner  required 
by  law  of  fidelity  and  surety  companies."     Section  812   re- 
quires the  bond  to  be  joint  and  several  in  form,  where  two  or 
more  persons  execute  it,  and  "except  when  executed  by  a  fidel- 
ity or  surety  company,  or  when  otherwise  expressly  prescribed 
by   law,   it  must  be   accompanied  with  the   affidavit   of  each 
surety"  as  to  his  qualifications.     After  making  other  regula- 
tions relating  to  the  subject,  the  section  further  provides  that 
"the  surety  or  sureties,  or  the  representatives  of  any  surety  or 
sureties  upon  the  bond  of  any  trustee,  committee     *     *     *     or 
other  fiduciary  may  present  a  petition  to  the  court  or  judge 
that  accepted  such  bond,  praying  to  be  relieved  from  further 
liability  as  such  surety  or  sureties  for  the  act  or  omission  of 
the  principal  named  in  such  bond  occurring  after  the  date  of 
the   order  relieving  such  surety  or   sureties  hereinafter   pro- 
vided for  and  that  such  principal  be  required  to  show  cause 
why  he  should  not  account  and  give  new  sureties.     Thereupon 
the  court  or  judge  must  issue  an  order  to  show  cause  accord- 
ingly and  may  restrain  such  principal  from  acting,  except  to 
preserve     the     trust     estate     until     further     order.       Upon 
the   return   of   the   order  so   issued,   if  the   principal   in   the 
bond  file  a  new  bond  in  the  usual  form  to  the  satisfaction  of 
the  court  or  ^udge  within  such  reasonable  time,  not  exceeding 


616  RIGHTS  OP  CORPORATE  SURETIES. 

five  days,  as  the  court  or  judge  fixes,  the  court  or  judge  must 
make  a  decree  or  order  requiring  the  principal  to  account  for 
all  his  acts  and  proceedings  to  and  including  the  date  of  such 
order  and  to  file  such  account  within  a  time  fixed  not  -exceed- 
ing twenty  days  and  releasing  the  surety  or  sureties  petitioning 
from  liability  upon  the  bond  for  any  subsequent  act  or  default 
of  the  principal.  If  the  principal  fails  so  to  file  such  bond 
within  the  time  specified,  a  decree  must  be  made  revoking  the 
appointment  of  such  principal  and  requiring  him  to  so  account, 
and  file  such  account  within  twenty  days.  After  the  filing  of 
an  account  as  required  in  this  section,  the  court  or  judge  must, 
upon  the  petition  of  the  surety  or  sureties,  or  the  representa- 
tives of  such  surety  or  sureties,  issue  an  order  requiring  all 
persons  interested  in  the  estate  or  trust  funds,  to  attend  a  set- 
tlement of  such  account  at  a  time  and  place  therein  specified, 
and  upon  the  trust  fund  or  estate  being  found  or  made  good 
and  paid  over  or  properly  secured,  the  surety  or  sureties  shall 
be  discharged  from  any  and  all  further  liability  upon  such 
bond." 

The  argument  in  support  of  the  position  taken  by  the  courts 
below  is  that  while  the  general  words  "surety  or  sureties"  are 
broad  enough  to  embrace  surety  companies,  as  the  legislature, 
when  referring  to  such  a  company  elsewhere  in  the  section  or 
the  one  preceding,  named  it  in  terms,  and  did  not  so  name  it 
in  the  provisions  authorizing  the  court  to  relieve  a  surety  from 
further  liability,  it  is  presumed  that  there  was  no  intention  to 
give  such  a  surety  the  right  to  apply  for  such  relief.  That  part 
of  the  Code  of  Civil  Procedure  which  went  into  effect  on  the 
1st  of  September,  1877,  embraced  sections  811  and  812,  which 
then  contained  no  authority  to  surety  companies  to  sign  bonds 
or  undertakings,  and  no  provision  authorizing  any  surety  to 
apply  for  the  relief  now  authorized  by  the  latter  section.  Laws 
1877,  c.  318.  In  1881  an  act  was  passed  authorizing  the  ac- 
ceptance of  certain  corporations  as  sureties  upon  bonds  and 
undertakings  required  or  allowed  by  law,  and  in  1893  another 
act  was  passed  of  the  same  character,  with  more  elaborate  pro- 
visions. Laws  1881,  c.  486 ;  Laws  1893,  c.  720.  In  1886  section 
811  of  the  Code  was  so  amended  as  to  authorize  the  execution 
of  bonds  or  undertakings  by  fidelity  or  surety  companies 
authorized  to  transact  business  in  this  state.  Laws  1886,  c. 
416.  In  1892  section  812  was  amended  so  as  to  authorize 


AMERICAN  SURETY  CO.  v.  THURBER.  617 

sureties  upon  certain  official  bonds  to  petition  for  release  from 
liability,  and  this  is  the  first  appearance  of  any  provision  upon 
that  subject  in  the  Code  which  we  have  been  able  to  discover. 
Laws  1892,  c.  568.  In  1895  said  section  was  further  amended 
by  inserting  in  the  earlier  part  thereof  the  provisions  relating 
to  fidelity  and  surety  companies,  which  now  appear  therein. 
Laws  1895,  c.  511.  At  this  time  surety  companies  had  been 
doing  business  throughout  the  state  for  a  number  of  years,  as 
the  legislature,  from  its  own  action,  is  presumed  to  have  known. 
"When,  therefore,  it  inserted  a  general  provision  relating  to 
fidelity  and  surety  companies  in  the  earlier  part  of  the  section, 
if  it  had  intended  to  except  such  companies  from  the  provisions 
of  the  latter  part,  applying  to  sureties  generally,  the  presump- 
tion is  that  it  would  have  said  so  in  terms.  It  cannot  be  pre- 
sumed that  when  amending  the  forepart  of  the  section  its  mem- 
bers failed  to  read  the  remainder,  or  to  comprehend  the  effect 
of  the  amendment  upon  the  section  as  a  whole.  It  allowed  the 
general  language,  which  theretofore  had  included  all  sureties 
authorized  to  sign  bonds  given  in  judicial  proceedings,  to  re- 
main after  the  section  was  so  extended  as  to  include  fidelity 
and  surety  companies.  As  they  are  expressly  named  in  one 
part,  and  named  generally  in  another,  with  no  exception  or 
qualification,  there  is  no  adequate  reason  to  believe  that  the 
legislature  intended  to  exclude  them  from  any  part.  There 
was  no  necessity  for  repeating  the  words  "fidelity  or  surety 
companies"  in  order  to  make  the  section,  as  an  entirety,  apply 
to  them ;  for  they  had  already  been  named  and  were  necessarily 
included,  unless  expressly  excepted.  As  the  legislature  did  not 
make  any  exception,  we  cannot,  for  there  is  no  basis  for  an 
exception  by  implication.  The  section  refers  to  any  surety  or 
sureties,  and  the  appellant  is  a  surety.  Having  contracted  as 
a  surety  in  the  manner  authorized  by  the  Code,  it  can  a«vail 
itself  of  such  remedies  as  the  Code  provides  for  sureties  gener- 
ally. 

Surety  companies  are  a  convenience  to  the  community,  and  it 
is  important  that  they  should  continue  sound  and  able  to  re- 
spond to  their  obligations.  The  legislature  doubtless  intended 
to  promote  their  stability  by  extending  the  same  protection  to 
them  that  it  extends  to  other  sureties.  The  contracts  of  such 
companies  are  usually  based  upon  an  annual  premium  for  a 
continuing  bond.  If  the  premium  were  not  paid  after  the  first 


618  RIGHTS  OF  CORPORATE  SURETIES. 

year,  and  the  company  could  not  avail  itself  of  the  privilege 
of  the  statute,  its  responsibility  would  continue  with  no  com- 
pensation, for  the  bond  would  still  be  in  force.  No  company 
can  do  business  on  such  a  basis.  Moreover,  if  the  annual  premi- 
ums are  paid,  but  the  principal  is  squandering  the  estate, 
how  can  a  surety  company  protect  itself?  Through  its 
officers  it  may  inform  those  interested,  and  request 
action  on  their  part;  but  if  they  reply,  "you  are  good, 
and  we  are  safe,"  what  relief  is  there,  unless  it  is  under  this 
section?  If  it  cannot  induce  those  ultimately  entitled  to  the 
money  or  property  to  act,  its  condition  is  hopeless,  and  bank- 
ruptcy may  be  the  result.  These  considerations,  and  others  of 
like  character,  may  well  have  influenced  the  action  of  the  legis- 
lature when  it  amended  the  section  under  consideration.  The 
provisions  of  the  statute  authorizing  the  company  to  become  a 
surety  are  part  of  the  contract  of  suretyship,  and  were  not 
waived  by  accepting  the  contract  of  indemnity,  which  expressly 
provides  that  acceptance  of  security  or  consideration  should  not 
"limit  or  abridge  any  right  or  remedy  which  the  surety  other- 
wise might  have."  We  think,  therefore,  that  the  courts  below 
fell  into  error  when  they  held  that  section  812  did  not  apply 
to  this  case,  and  declined  to  pass  upon  any  other  question. 

The  appellant  claims  that  the  provisions  of  the  section  are 
mandatory,  as  the  words  "must"  ordinarily  excludes  discre- 
tion. That  word,  however,  is  occasionally  used  in  the  Code 
without  the  imperative  meaning  which  it  usually  has.  Spears 
v.  Mayor,  etc.,  72  N.  Y.  442;  Wallace  v.  Feely,  61  How.  Prac. 
225,  affirmed  in  88  N.  Y.  646.  The  provision  requiring  the 
court  to  "issue  an  order  to  show  cause"  implies  that  cause  may 
be  shown.  It  is  more  than  a  substitute  for  a  notice  of  motion, 
for  it  is  a  specific  requirement  in  a  statute  creating  a  special 
remedy,  of  which  it  is  a  part.  There  is  no  reason  why  the  prin- 
cipal should  b.e  required  to  show  cause,  if  no  cause  can  be 
shown  under  any  circumstances.  When  all  the  provisions  of 
the  section  are  read  together,  we  think  the  court  has  a  discre- 
tion to  exercise,  depending  on  the  facts  of  the  case,  and  is 
not  commanded  to  make  a  decree  regardless  of  those  facts.  In 
other  words,  we  construe  the  expression  "a  decree  must  be 
made,"  under  the  circumstances,  to  mean  "a  decree  may  be 
made";  and  hence  the  special  term  had  a  discretion  to  exercise 
in  the  first  instance,  and  the  appellate  division  by  way  of  re- 


BANK  OF  TARBORO  v.  FIDELITY  CO.  619 

view.  Neither  court,  however,  exercised  its  discretion  or  con- 
sidered the  subject,  because  both  held  that  section  812  did  not 
apply  to  a  surety  company.  The  application  of  the  company, 
therefore,  has  not  yet  been  fully  passed  upon,  so  we  are  com- 
pelled to  reverse  the  order  appealed  from,  and  remit  the  pro- 
ceeding to  the  appellate  division  for  further  action. 

PARKER,   C.   J.,   and   O'BRIEN,  BARTLETT,  HAIGHT,  MARTIN, 
and  LANDON,  JJ.,  concur. 

Order  reversed,  etc. 


BANK  OF  TARBORO  v.  FIDELITY  &  DEPOSIT  CO. 

1901. 

128  N.  C.  366;  38  S.  E.  Rep.  908;  83  Am.  St.  Rep.  682. 

Appeal  from  superior  court,  Edgecombe  county;  Coble, 
Judge. 

DOUGLAS,  J.  This  case  has  been  here  before,  and  is  reported 
in  126  N.  C.  320,  35  S.  E.  588.  As  far  as  that  decision  goes, 
it  will  be  considered  as  final  in  the  determination  of  this  case. 
The  following  are  the  issues  as  submitted  and  answered:  "  (1) 
Did  Mehegan,  as  cashier,  and  while  in  the  performance  of  the 
duties  of  his  office,  between  December  15,  1895,  and  September 
3,  1897,  fraudulently  take  from  the  assets  and  money  of  plain- 
tiff bank  the  sum  of  $5,000,  and  on  May  27,  1897,  for  the  pur- 
pose of  concealing  his  fraudulent  conduct,  charge  said  amount 
to  the  City  National  Bank  of  Norfolk  on  the  books  of  plain- 
tiff bank?  Ans.  Yes.  (2)  Did  the  defendant,  Mehegan,  be- 
tween December  15,  1896,  and  September  3,  1897,  as  cashier, 
fraudulently  take  from  the  assets  of  the  plaintiff  bank  a  sum 
of  money  by  means  of  overdraft  on  said  bank  aggregating 
$1,000  and  more?  Ans.  Yes.  (3)  Did  the  defendant,  Meho- 
gan,  between  December  15,  1895,  and  September  3,  1897,  as 
cashier,  fraudulently  take  from  the  assets  and  money  of  said 
bank  the  sum  of  $9,550,  or  other  amount,  and  by  false  entries 
on  the  books  of  said  bank  conceal  the  same  from  the  plaintiff 
bank?  Ans.  Yes.  (4)  Did  the  defendant,  Mehegan,  as  cashier, 
between  May  12,  1897,  and  August  6,  1897,  fraudulently  take 
from  the  money  and  assets  of  said  bank  the  sum  of  $5,000,  which 
he  concealed  by  making  false  entries  in  the  books  of  said  bank? 


620  RIGHTS  OF  CORPORATE  SURETIES. 

Ans.  Yes.  (5)  Did  the  defendant,  Mehegan,  between  Decem- 
ber 15,  1895,  and  September  3,  1897,  as  cashier,  fraudulently 
take  money  and  assets  of  the  bank,  and  convert  the  same  to  his 
own  use?  Ans.  Yes.  (6)  Did  the  defendant,  from  September, 
1896,  to  September  1,  1897,  as  cashier,  fraudulently  take  from 
the  money  and  assets  of  the  said  bank  the  sum  of  $452.21, 
which  he  applied  to  his  own  use?  Ans.  Yes.  (7)  Did  the  de- 
fendant, Mehegan,  as  cashier,  on  the  3d  of  August,  1897,  frau- 
dulently issue  a  cashier's  check  on  the  said  bank  to  J.  M.  Nor- 
fleet  to  the  amount  of  $600  for  the  purpose  of  paying 
an  individual  indebtedness  of  said  Mehegan?  Ans. 
Yes.  (8)  Did  the  defendant,  Mehegan,  fraudulently  dis- 
count notes  and  bills,  and  pay  for  the  same  with  money  of  the 
bank,  without  the  knowledge  and  assent  of  the  proper  com- 
mittees? Ans.  Yes.  (9)  Did  the  plaintiff  notify  the  defend- 
ant Fidelity  &  Deposit  Company  of  the  alleged  default  of  the 
said  J.  Gr.  Mehegan  as  required  by  the  bond?  Ans.  Yes.  (10) 
Did  the  plaintiff,  after  the  execution  of  the  surety  contract, 
increase  its  capital  stock?  Ans.  Yes.  [This  was  answered  by 
the  jury  "Yes,"  in  April,  1896.]  (11)  Were  the  representa- 
tions in  the  certificate  for  the  renewal  of  the  surety  bond  as  to 
the  dealings  and  accounts  of  the  said  Mehegan,  cashier,  true 
and  correct  when  they  were  made?  Ans.  Yes.  (12)  Were 
such  representations  as  to  the  dealings  and  accounts  of  the  said 
Mehegan,  cashier,  on  the  said  certificate,  false  to  the  knowledge 
of  the  plaintiff  at  the  time  they  were  made?  Ans.  No.  (13) 
Did  said  representations  constitute  a  material  inducement  of 
the  defendant  company  to  continue  said  bond  from  December 
15,  1896,  to  December  15,  1897?  Ans.  No.  (14)  Did  the 
plaintiff  cause  to  be  observed  due  and  customary  supervision 
over  said  Mehegan,  cashier,  for  prevention  of  default?  Ans. 
Yes.  (15)  Did  the  Fidelity  &  Deposit  Company  have  notice 
of  the  increase  of  the  capital  stock  before  the  extension  of  the 
bond?  Ans.  Yes." 

The  defendant  assigns  for  error:  "(T)  That  the  court  erred 
in  admitting  the  written  statement  as  excepted  to.  (2)  For 
error  in  instructing  the  jury  as  set  out  in  the  charge  to  the 
jury.  (3)  In  that  instructions  are  inconsistent,  contradict- 
ory, and  misleading.  (4)  In  the  construction  of  the  meaning 
of  the  words  'immediately  notified.'  (5)  In  instructing  the 
jury  that  the  same  supervision  and  duty  required  of  the  officers 


BANK  OF  TARBORO  v.  FIDELITY  CO.  621 

of  the  plaintiff  bank  over  the  management  of  the  affairs  of  the 
bank  was  such  care,  supervision,  and  duty  as  the  ordinary  pru- 
dent business  man  would  give.  (6)  For  refusing  to  instruct 
the  jury  as  requested  in  the  several  prayers  submitted  by  the 
defendant. ' ' 

The  first  assignment  of  error  cannot  be  sustained.  The  ad- 
mitted paper  was  a  memorandum  of  the  examination  of  the 
defendant,  Mehegan,  before  a  committee  of  the  board  of  direc- 
tors of  the  plaintiff  bank,  and  taken  down  by  the  witness  Davis, 
who  testified  as  follows:  "Mehegan  was  present  before  the 
committee.  He  was  examined.  His  examination  was  put  in 
writing, — was  recorded  at  the  time  in  writing.  I  read  every 
sentence  to  Mehegan  as  Mr.  Fountain  propounded  the  ques- 
tions. Then  I  wrote  down  Mehegan 's  answer.  I  read  the  ques- 
tions and  answers  as  they  were  made;  and  he  said  that  they 
were  correct.  The  entire  paper  is  in  my  handwriting.  Then 
read  the  whole  over  to  Mehegan.  He  never  refused  to  sign; 
never  was  asked  to  sign  it."  Under  such  circumstances  we 
think  the  paper  was  admissible  as  part  of  the  testimony  of 
Davis,  with  whose  credibility,  of  course,  its  own  was  involved. 
Bryan  v.  Moring,  94  N.  C.  687;  State  v.  Pierce,  91  N.  C.  606; 
State  v.  Jordan,  110  N.  C.  491,  495,  14  S.  E.  752. 

"We  do  not  think  that  either  the  second  or  third  assignments 
can  be  sustained.  The  judge's  charge  extends  through  15  pages 
of  the  printed  record,  and  is  full,  clear,  and  explicit,  and,  we 
think,  free  from  substantial  error.  Many  of  the  points  raised 
by  the  defendant  come  under  the  principles  decided  when  the 
case  was  first  before  us.  We  then  said  (126  N.  C.  324,  35  S.  E. 
589) :  "The  object  of  the  contract  was  to  secure  the  plaintiff 
against  the  fraudulent  acts  of  its  cashier.  The  complaint  al- 
leges the  execution  of  the  bond  and  its  renewal,  and  sets  out 
their  substantial  features,  the  alleged  fraudulent  acts  of  the 
cashier,  and  notice  to  the  defendant  company.  These  facts 
being  proved  would  have  made  out  the  plaintiff's  case.  Noth- 
ing else  appearing,  the  plaintiff  would  have  been  entitled  to 
recover,  and,  if  the  defendant  company  relied  upon  breaches 
of  the  contract  on  the  part  of  the  plaintiff  to  defeat  a  recovery, 
it  should  have  specifically  pleaded  them.  The  burden  of  prov- 
ing them  would  have  rested  upon  the  defendant.  To  require 
the  plaintiff  to  set  out  each  and  all  of  the  fifty  conditions  and 
stipulations  in  the  bond  and  application,  and  then  prove  affirm- 


622  RIGHTS  OF  CORPORATE  SURETIES. 

atively  that  he  had  performed  each  one  of  them,  would  prac- 
tically defeat  any  recovery,  and  would  amount  to  a  denial  of 
justice."  That  is  now  the  law  of  this  case,  and  our  opinion 
of  its  correctness  has  been  confirmed  by  subsequent  investiga- 
tion and  further  reflection.  The  object  of  an  indemnifying 
bond  is  to  indemnify;  and,  if  it  fails  to  do  this,  either  directly 
or  indirectly,  it  fails  to  accomplish  its  primary  purpose,  and 
becomes  worse  than  useless.  It  is  worthless  as  an  actual  secur- 
ity, and  misleading  as  a  pretended  one.  The  defendant  lays 
great  stress  upon  section  5,  c.  300,  Laws  1893,  which  is  as  fol- 
lows: Any  company  executing  such  bond,  obligation  or  under- 
taking may  be  released  from  its  liability  as  surety  on  the  same 
terms  as  are  or  may  be  by  law  prescribed  for  the  release  of  in- 
dividuals upon  any  such  bond,  obligation  or  undertaking."  It 
seems  clear  to  us  that  the  only  object  of  that  section  was  to 
enable  such  company  to  release  its  liability  by  getting  off  the 
bond  whenever  an  individual  could  do  so;  but  not  to  remain 
on  the  bond  and  limit  its  liability  by  such  unreasonable  restric- 
tions as  would  practically  amount  to  a  release  by  tending  to 
defeat  a  recovery.  Moreover,  that  section  says,  "On  the  same 
terms  as  are  or  may  be  by  law  prescribed."  Where  are  any 
such  terms  prescribed  by  law  as  those  which  appear  in  the  bond 
before  us,  and  which  the  defendant  is  so  strenuously  endeavor- 
ing to  bring  within  the  terms  of  that  section?  We  are  sure 
that  act  never  intended  to  authorize  trustees,  guardians,  or 
administrators  to  give  bond  with  such  stipulations  construed  as 
the  defendant  is  now  asking  us  to  construe  them.  The  defend- 
ant again  insists  that  it  should  have  the  same  right  to  limit  its 
liability  as  is  possessed  by  an  individual.  That  may  be,  but 
no  member  of  this  court  has  ever  seen  or  heard  of  a  bond  in 
such  a  form  being  tendered  by  a  private  surety.  In  its  very 
form  and  essence,  the  bond  before  us  resembles  an  insurance 
contract,  and  differs  materially  from  the  ordinary  forms  com- 
ing down  to  us  by  immemorial  usage.  Therefore  we  must  place 
such  bonds  in  the  general  class  of  insurance  policies,  and  con- 
strue them  upon  the  same  general  principles;  that  is,  most 
strongly  against  the  company,  and  most  favorably  to  their  gen- 
eral intent  and  essential  purpose.  Bank  of  Tarboro  v.  Fidelity 
&  Deposit  Co.,  126  N.  C.  320,  325,  35  S.  E.  588 ;  Surety  Co.  v. 
Panly,  170  U.  S.  133,  18  Sup.  Ct.  552,  42  L.  Ed.  977.  In  the 
latter  case,.  Justice  HARLAN,  speaking  for  a  unanimous  court, 


BANK  OF  TARBORO  v.  FIDELITY  CO.  623 

says  (on  page  144,  170  U.  S.,  page  556,  18  Sup.  Ct,  and  page 
981,  42  L.  Ed.) :  "If,  looking  at  all  its  provisions,  the  bond  is 
fairly  and  reasonably  susceptible  of  two  constructions,  one 
favorable  to  the  bank  and  the  other  favorable  to  the  surety 
company,  the  former,  if  consistent  with  the  objects  .for  which 
the  bond  was  given,  must  be  adopted,  and  this  for  the  reason 
that  the  instrument  which  the  court  is  invited  to  interpret  was 
drawn  by  the  attorneys,  officers,  or  agents  of  the  surety  com- 
pany. This  is  a  well  established  rule  in  the  law  of  insurance. 
First  Nat.  Bank  v.  Hartford  Fire  Ins.  Co.,  95  U.  S.  673,  24  L. 
Ed.  563 ;  Insurance  Co.  v.  Cooper,  32  Pa.  St.  351,  355 ;  Reynolds 
v.  Insurance  Co.,  47  N.  Y.  597,  604;  Insurance  Co.  v.  McConkey, 
127  U.  S.  61,  666,  8  Sup.  Ct.  1360,  32  L.  Ed.  308 ;  Fowkes  v. 
Association,  3  Best  &  S.  917,  925.  As  said  by  Lord  St.  Leon- 
ards in  Anderson  v.  Fitzgerald,  4  H.  L.  Cas.  484,  507:  'It  [a 
life  policy]  is,  of  course,  prepared  by  the  company,  and  if, 
therefore,  there  should  be  any  ambiguity  in  it,  must  be  taken, 
according  to  law,  most  strongly  against  the  person  who  pre- 
pared it.'  There  is  no  sound  reason  why  this  rule  should  not 
be  applied  in  the  present  case.  The  object  of  the  bond  in  suit 
was  to  indemnify  or  insure  the  bank  against  loss  arising  from 
any  act  of  fraud  or  dishonesty  on  the  part  of  O'Brien  in  con- 
nection with  his  duties  as  cashier,  or  with  the  duties  to  which, 
in  the  employer's  service,  he  might  be  subsequently  appointed. 
That  object  should  not  be  defeated  by  any  narrow  interpreta- 
tion of  its  provisions,  nor  by  adopting  a  construction  favorable 
to  the  company,  if  there  be  another  construction  equally  admis- 
sible under  the  terms  of,  the  instrument  executed  for  the  pro- 
tection of  the  bank."  To  the  same  effect  are  the  cases  of  Im- 
perial Fire  Ins.  Co.  v.  Coos  Co.,  151  U.  S.  452,  14  Sup.  Ct.  379, 
38  L.  Ed.  231;  London  Assurance  v.  Compania  De  Moagens  Do 
Barreiro,  167  U.  S.  149,  17  Sup.  Ct.  785,  42  L.  Ed.  113 ;  Horton 
v.  Insurance  Co.,  122  N.  C.  498,  29  S.  E.  944;  Grabbs  v.  Ins. 
Co.,  125  N.  C.  389,  398,  34  S.  E.  503,  and  cases  therein  cited. 
The  same  principle  of  construction  has  been  applied  to  the 
contracts  of  common  carriers.  Wood  v.  Railway  Co.,  118  N.  C. 
1056,  1063,  24  S.  E.  704;  Mitchell  v.  Railroad  Co.,  124  N.  C. 
236,  32  S.  E.  671 ;  Jeffreys  v.  Railway  Co.,  127  N.  C.  377,  37 
S.  E.  515 ;  Hinkle  v.  Railway  Co.,  126  N.  C.  932,  36  S.  E.  348. 
The  defendant  has  voluntarily  become,  by  virtue  of  the  statute, 
what  may  be  called  a  "common  surety";  not  exactly  in  the 


624  RIGHTS  OF  CORPORATE  SURETIES. 

nature  of  a  common  carrier,  like  railroad  and  telegraph  com- 
panies, but  still  one  of  those  public  agencies  to  which  are  given 
unusual  powers,  and  which  have  assumed  the  most  sacred  re- 
sponsibilities. Permitted  by  law  to  act  as  sole  sureties  for 
trustees,  guardians,  administrators,  and  other  fiduciaries,  they 
are  held  by  the  policy  of  the  law  to  the  full  measure  of  the 
responsibility  they  have  voluntarily  assumed.  They  may  make 
such  reasonable  regulations  as  are  necessary  for  their  own  pro- 
tection, or  the  proper  transaction  of  their  business;  but  such 
stipulations  will  be  most  strongly  construed  against  a  forfeit- 
ure of  the  indemnity  for  which  alone  the  bond  is  given,  and  in 
favor  of  a  fair  and  equitable  construction  of  the  essential  pur- 
poses of  the  contract. 

The  fourth  exception  is  equally  untenable.  On  that  point  his 
honor  charged  as  follows:  "If  you  find  from  the  testimony 
that  the  plaintiff  bank,  in  a  reasonable  time,  and  with  due  dili- 
gence, under  the  circumstances,  as  explained  in  these  instruc- 
tions, and  in  view  of  all  the  facts  in  evidence,  gave  notice  of 
the  default  of  the  said  Mehegan,  you  should  answer  the  ninth 
issue  'Yes.'  The  plaintiff  was  not  required,  by  the  terms  of  the 
bond,  to  give  notice  to  defendant  company  upon  suspicion  that 
Mehegan  was  guilty  of  fraudulent  conduct.  The  plaintiff  was 
not  required  to  give  notice  to  the  defendant  company  until  it 
had  actual  knowledge  of  such  facts  as  would  justify  the  charge 
of  default;  and  it  was  entitled  to  a  reasonable  time  to  investi- 
gate the  condition  of  said  Mehegan 's  accounts  before  it  was  re- 
quired to  give  such  notice,  if  such  investigation  was  necessary 
to  ascertain  the  facts  which  would  justify  the  charge  of  fraud. ' ' 
In  this  we  see  no  error.  The  plaintiff  was  not  required  to  act 
upon  mere  suspicion  in  preferring  so  grave  a  charge  as  fraud 
or  embezzlement.  Moreover,  reasoning  from  analogy  to  the 
rights  of  a  guarantor,  the  defendant  does  not  appear  to  have 
suffered  any  material  injury  from  such  delay,  even  if  the  plain- 
tiff had  been  responsible  for  the  delay,  which  the  jury  found 
to  the  contrary.  But  the  defendant  contends:  "That,  if  the 
surety  is  'immediately  notified'  of  the  defalcation,  upon  its  dis- 
covery the  surety  would  have  an  opportunity  to  deal  with  the 
defaulter,  and  secure  some  part,  if  not  all,  of  its  loss.  This  case 
proves  at  once  the  wisdom  and  justice  of  such  a  provision,  for 
by  not  notifying  the  surety  'immediately'  the  plaintiff  was  en- 
abled to  get  all  the  security  the  defaulting  principal,  the  cashier. 


GERMAN-AMERICAN  CO.  v.  TRUST  CO.  625 

could  give,  and  the  surety  had  no  opportunity."  The  plaintiff 
had  the  right  to  resort  to  all  the  property  of  the  defaulting 
cashier,  whether  he  gave  bond  or  not;  and,  if  the  defendant 
means  to  contend  that  by  signing  the  cashier's  bond  as  surety 
it  acquired  a  right  of  reimbursement  superior  to  that  of  the 
bank,  we  can  only  say  that  it  does  not  so  appear  to  us  either 
from  the  terms  of  the  bond  or  the  general  principles  of  law. 

The  fifth  assignment  of  error  cannot  be  sustained,  as  we 
think  the  charge  of  his  honor  was  correct.  In  fact,  no  other 
rule  justly  capable  of  practical  application  suggests  itself  to  us. 

The  sixth  exception  is  equally  untenable.  The  defendant  sub- 
mitted 12  special  instructions,  occupying  five  pages  of  the 
printed  record.  It  is  useless,  as  well  as  impracticable,  to  con- 
sider each  in  detail.  All  we  need  now  say,  in  addition  to  what 
has  already  been  said,  is  that  they  were  all  properly  refused 
either  for  intrinsic  error  or  because  sufficiently  given  in  his 
honor's  charge.  In  the  absence  of  substantial  error,  the  judg- 
ment of  the  court  below  is  affirmed. 


CHAPTER  XXIV. 

MEASURE  OF  DAMAGES. 

a.  The  measure  of  damages  in  guaranty  insurance  is  the  actual 
loss  arising  from  the  peril  insured  against,  up  to  the  amount 
of  the  policy. 

GERMAN-AMERICAN  TITLE  &  TRUST  CO.  v.  CITIZENS' 
TRUST  &  SURETY  CO.    1899. 

190  Pa.  St.  247;  42  Atl.  Rep.  682. 

Appeal  from  court  of  common  pleas,  Philadelphia  county. 

FELL,  J.  The  defendant  agreed  to  insure  the  plaintiff  against 
actual  loss  which  might  result  to  it,  as  a  purchaser  of  ground 
rents  upon  unimproved  land,  by  reason  of  the  noncompletion  of 
buildings  to  be  erected  thereon  by  P.  P.  Elkinton.  No  policy 
was  issued,  but  the  settlement  certificate  was  treated  by  both 
parties  as  a  complete  agreement.  By  the  terms  of  this  certi- 
40 


17 


626  MEASURE   OF  DAMAGES. 

fieate  a  policy  for  $30,000,  insuring  the  plaintiff  against  actual 
loss  by  reason  of  the  noncompletion  of  42  buildings  prior  to 
January  1,  1894,  in  accordance  with  an  agreement  between  El- 
kinton  and  the  assured,  dated  January  17,  1893,  was  to  be  is- 
sued when  the  transaction  was  settled  and  the  deeds  recorded. 
The  agreement  of  January  17,  1893,  referred  to,  provided  for 
the  sale  of  the  ground  rents,  the  construction  of  the  buildings, 
the  manner  of  payment,  and  for  a  resale  of  the  ground  rents  to 
Elkinton,  at  his  option,  upon  certain  terms.  This  agreement 
was  signed  by  Elkinton  only,  but  it  was  accepted  and  acted 
upon  by  the  plaintiff,  and  the  provisions  binding  the  plaintiff 
were  fully  carried  out.  The  plaintiff  advanced  $116,000,  the 
buildings  were  not  completed,  and  the  plaintiff's  actual  loss 
was  largely  in  excess  of  the  amount  of  the  insurance.  In  Sep- 
tember, 1893,  Elkinton,  without  the  assent  or  knowledge  of  the 
plaintiff,  assigned  his  contract  to  G-oodchild,  and  soon  after- 
wards the  work  on  the  buildings  stopped.  Subsequently  Elkin- 
ton claimed  that  the  assignment  had  been  procured  from  him 
by  fraud.  He  filed  a  bill  in  equity,  and  obtained  a  special  in- 
junction, which  was  afterwards  dissolved.  The  bill,  however, 
was  proceeded  with,  and  the  controversy  was  not  closed  for  sev- 
eral months  thereafter.  A  balance  due  by  the  plaintiffs  was 
claimed  by  Elkinton,  by  Groodchild,  and  by  the  defendant.  Nego- 
tiations for  the  adjustment  of  the  difficulties  which  had  arisen, 
and  for  the  completion  of  the  work,  were  pending  for  some 
time,  but  were  finally  abandoned,  and  the  ultimate  loss  to  the 
plaintiff  was  $48,000. 

Two  of  the  defendant's  contentions  at  the  trial — (1)  that  the 
agreement  dated  January  13,  1893,  was  not  executed  until  after 
May  20th,  the  date  of  the  settlement  certificate,  and  (2)  that 
the  plaintiff,  after  the  assignment  by  Elkinton,  unjustifiably 
refused  to  pay  to  Goodchild  or  to  the  defendant — depended  on 
the  facts  proved,  and  they  were  decided  by  the  jury  adversely 
to  the  defendant.  "We  see  no  ground  for  a  just  criticism  of  the 
manner  in  which  the  questions  of  fact  were  submitted,  or  of  the 
statement  of  the  law  applicable  thereto. 

It  remains  to  consider  whether  the  failure  of  the  plaintiff  to 
sign  the  agreement  entered  into  with  Elkinton  precluded  it  from 
recovering  on  the  contract  of  insurance  with  the  defendant,  and 
whether  the  proper  rule  for  measuring  the  damages  was  given 
the  jury.  It  was  contended  by  the  defendant  that,  as  the  agree- 


GERMAN-AMERICAN  CO.  v.  TRUST  CO.  627 

ment  of  January  17,  1893,  related  to  the  purchase  and  sale  of 
real  estate,  and  was  not  signed  by  the  plaintiff,  and  not  ratified 
by  writing,  it  was  invalid,  and  could  not  have  been  enforced  by 
Elkinton,  or  by  his  surety,  in  case  of  subrogation  to  his  rights ; 
and  that  the  defendant's  contract  of  insurance,  which  was 
based  upon  this  agreement,  was  not  binding  upon  it.  What 
Elkinton  agreed  with  the  plaintiff  to  da  was  to  convey  to  it  the 
ground  rents,  to  build  on  the  ground  so  as  to  secure  the  rents, 
and  to  furnish  the  bond  of  a  trust  company  guarantying  the 
completion  of  the  buildings  in  accordance  with  plans  to  be  ap- 
proved by  the  plaintiff.  In  pursuance  of  this  agreement  he 
procured  the  defendant's  contract  to  insure  the  completion  of 
the  buildings,  made  the  conveyances,  and  received  the  purchase 
money.  If  a  policy  had  been  issued,  it  would  not  have  taken 
effect  until  the  conveyance  was  made.  The  insurance  related 
to  what  remained  to  be  done  after  the  conveyance,  the  com- 
pletion of  the  buildings,  and  to  that  part  only  of  Elkinton 's 
agreement.  It  was  not  an  insurance  that  he  would  convey, 
but  that,  after  conveying,  he  would,  build.  It  did  not  cover  any 
obligation  on  the  part  of  the  plaintiff,  but  the  obligation  of  El- 
kinton only,  as  fixed  by  a  then  existing  agreement  between  him 
and  the  plaintiff. 

We  find  no  error  in  the  statement  of  the  rule  for  the  measure 
of  damages.  The  jury  were  limited  to  the  ac^aJLloss_in,jjie. 
value  of  the  ground  rents,  not  exceeding  the  amount  of  the  in- 
surance, and  were  instructed  that  that  loss  would  be  represented 
by  the  difference  in  the  market  value  of  the  ground  rents  if 
the  buildings  had  been  completed  as  provided  by  the  agree- 
ment and  their  value  with  the  buildings  in  the  uncompleted 
state  in  which  they  were  left.  We  know  of  no  better  rule  than 
this  in  such  a  case,  and  of  none  more  just  or  favorable  to  the 
defendant.  A  sale  of  ground  rents  issuing  out  of  land  on  which 
were  uncompleted  buildings  would  furnish  a  very  unsatisfac- 
tory and  inconclusive  test  of  their  value.  A  sale  would  be  one 
means  of  fixing  a  value  with  the  buildings  unfinished,  but  the 
ground  rents,  if  not  well  secured,  even  with  completed  build- 
ings, would  have  been  worth  less  than  par.  The  plaintiff  was 
under  no  duty  to  take  the  chance  of  a  greater  loss  by  exposing 
its  property  to  sale  with  the  buildings  unfinished. 

The  judgment  is  affirmed. 


INDEX. 

[REFERENCES  ABE  TO  PAGES.] 

A 

Absolute  guaranty,  140,  386. 

Acceptance,  notice  of,  140,  151,  160,  172,  184,  188,  193,  195,  196,  206,  208, 

211,  399,  455. 

Agent  paying  own  salary,  459. 

Agreement  between  debtors,  283,  286,  295,  301,  303,  308,  311,  315. 
Alteration  of  principal  contract,  212,  213,  220. 
Ambiguity  of  contract,  50,  471. 
Ambiguity,  how  construed,  550. 
Assets   of  insolvent  estate,   trust  fund,   370. 
Assignment,  general,  542. 
Audit  defined,  472. 
Audits  and  examinations,  472. 

B 

Bank  as  surety,  94. 

Bank,  cashier's  statements,  433. 
Bank,  change  of  name,  68. 
Bank,  statements  of  condition,  434. 
Bonds,  for  employers,  518. 
Bonds,  Credit  indemnity,  536. 

Construction,  509,  513. 

Real  estate  title,  573,  580. 
Breach  of  warranty,  480. 
Brewing  company  as  surety,  107. 
Broker,  fidelity  of,  470. 
Building  bonds,  509,  513. 
Burden  of  proof  on  conditions,  474.    ' 

O 

Cashier's  statements,  433. 
Change  of  duties  of  principal,  445. 
Change  of  contract,  37,  212,  213. 
Circumstances  when  considered,  50,  471. 
Claim  against  insolvent  estate,  364. 
Collection,  guaranty  of,  377,  380. 
Collectible,  defined,  381. 
Common  law,  women,  26,  77,  84. 
Commercial  corporations  as  sureties,  99,  109. 
Commission  merchant  defined,  470. 

629 


630  INDEX. 

[BEFEBENCES  ABE  TO  PAGES.] 

Concealment  of  cause  of  action,  436. 
Concealment  by  obligee,  431. 
Consideration,  18,  22,  32,  57,  80,  82,  93,  167. 
Consideration  under  statutes  of  frauds,  393. 
Continuing  letter  of  credit,  401. 
Continuing  defaulter  in  service,  453. 
Contract,  change  of,  212,  213. 
Contract,  construction  of,  28,  33,  41. 
Contract,  secondary,  455. 
Construction  of  contract,  28,  33,  41. 
Construction  bonds,  509,  513. 
Continuing  guaranty,  156,  181,  452. 
Contribution,  352,  354. 
Conversion,  not  dishonesty,  475. 
Coverture,  26,  27. 
Corporation  as  surety,  94,  99. 
Corporation,  change  of  name,  59,  68. 
Corporation,  knowledge  of  officers,  46. 
Cost  distributed  between  sureties,  357. 
Credit,  letter  of,  400. 
Credit,  ratings  of,  539. 
Creditor  subrogated  to  rights  of  surety,  249. 
Credit  indemnity  bonds,  536. 
Credits,  insurance  of,  536. 

D 

Damages,  measure  of,  625. 

Death  of  surety  on  bond,  409. 

Death  of  surety  discharges  estate,  406,  409. 

Death  of  continuing  guarantor,  406. 

Death,  notice  of,  408,  412. 

Debt  not  covered  by  fidelity  bond,  474. 

Debtors,  insolvency  of,  554. 

Defaulter,  continuing  of,  453,  459. 

Default  known  to  obligee,  460. 

Default,  notice  of,  451. 

Defalcation- of  principal,  432. 

Defense  available  to  surety,  490. 

Definition  of  guaranty,  3,  6,  17. 

Delay  alone  will  not  discharge  surety,  262,  273. 

Delay  in  enforcing  collection  from  defaulter,  459. 

Delivery  before  all  sign,  119. 

Demand  and  notice,  8,  20. 

Demurrer  to  evidence,  480. 

Deposits  failure  to  apply,  278. 


DJDEX.  631 

[REFERENCES  ABE  TO  PAGES.] 

Diligence  not  required  of  obligee,  440. 
Duties  changed  by  law,  450. 
Duties,  change  of,  445. 
Duties,  change  of  when  material,  457. 
Draft,  guaranty  of,  3,  49. 

E 

Effect  of  agreement  between  debtors,  283,  295,  301,  303,  308,  311,  315. 

Employers'  liability  bonds,  518. 

Evidence,  demurrer  to,  400. 

Evidence,  entries  made  by  principal,  444. 

Evidence  of  circumstances,  50. 

Evidence,  judgment  against  principal,  501. 

Evidence,  judgment  in  favor  of  principal,  502. 

Examinations  and  audits,  472. 

Execution  of  contract,  117. 

Execution,  return  of,  546. 

Extension,  fraud  in  procuring,  240. 

Extension  of  time,  21,  222,  231,  242. 

Extinguishment  of  obligation  of  principal,  203. 

Equality  is  equity,  352. 

Equity  will  compel  principal  to  pay,  402. 

F 

Facility  for  peculation  increased,  446. 
False  warranties,  480. 
Fidelity  bonds  concealment,  431. 
Fidelity  bond,  death  of  surety,  423,  425,  428. 
Forfeitures  must  be  pleaded,  442. 
Forgery  of  name  of  co-surety,  127,  129. 
Frauds,  statute  of,  48,  387,  396. 
Fraudulent  concealment  by  principal,  439. 
Fraudulent  representations,  480. 

G 

General  assignment,  542. 

General  guaranty,  46. 

General  letter  of  credit,  400. 

Grantee  assuring  mortgage,  283,  286,  290. 

Guaranty,  absolute,  140,  386. 

Guaranty,  continuing,  156,  181,  452. 

Guaranty  denned,  3,  6,  17,  24,  375,  452,  453. 

Guaranty  of  invalid  note,  499. 

Guaranty  of  signatures,  498. 

Guaranty,   subsequent,   25. 


632  INDEX. 

[REFERENCES  ARE  TO  PAGES.] 

Guaranty  and  suretyship  compared,  7,  17,  452,  453. 
Guaranty  of  payment,  371,  498. 
Guaranty  of  collection,  377,  380. 

H 

Husband  as  agent  of  wife,  88. 


Indemnified  surety,  321,  324,  326,  328. 
Indemnity  in  hands  of  one  surety,  351,  358. 
Indemnity  received  after  debt  paid,  361. 
Infant  as  principal,  132,  137. 
Infant  may  be  surety,  111,  112. 
Insane  person  as  principal,  132,  138. 
Insolvent  estate,  claim  against,  364. 
Insolvency  of  principal  debtor,  554,  557,  567. 
Insurance  of  credits,  536. 
Interest  of  parties,  471. 

J 

Judgment  against  principal,  501,  506. 
Judgment  in  favor  of  principal,  502. 


Knowledge  of  death  of  surety,  417. 
Knowledge  of  relation  of  surety,  245,  250. 


Laborers  may  recover  on  bond,  512. 

Language  clicsen  by  surety,  470. 

Last  price,  608. 

Lease,  guaranty  of  rent,  24. 

Letter  of  credit,  400. 

Liability  of  surety  measured  by  that  of  principal,  437. 

Limitation,  affected  by  concealment,  436. 

Limitation,  statute  of,  5. 

Location,  change  of,  213. 

M 

Material  men  may  recover  on  bond,  512. 
Married  woman  as  principal,  132-135. 
Married  women  as  sureties,  26,  27. 
Married  women,  status  of,  88. 
Measure  of  damages,  625. 

Mere  delay  will  not  discharge  surety,  264,  267-273. 
Minor,  surety  for,  392. 


INDEX.  633 

[BEFEBENCES  ABE  TO  PAGES.] 

Moral  obligation  as  consideration,  93. 
Motive  distinguished  from  consideration,  82. 

N 
Name,  change  of,  59,  68. 

Negligence  of  creditor,  16. 

Negligence  of  public  officers,  465. 

Neglect  of  officials,  488. 

Nominal  consideration,  169,  211. 

Non-payment,  notice  of,  7,  199,  374,  384.   • 

Notice  of  acceptance,  140,  160,  162,  172,  184,  188,  193,  196,  206,  208,  211, 

384,  399,  455. 

Notice  of  death,  408,  412,  417. 
Notice  and  demand,  8. 
Notice  of  default,  451,  464. 
Notice  of  non-payment,  7,  185,  374,  384. 

O 

Original  promise,  161,  201. 

Offer  to  guarantee,  172,  191. 
Official  neglect,  487. 
Officers,  statement  by,  484. 

P 

Parol  evidence  of  consideration,  396. 
Part  payment  as  consideration,  232,  242. 
Payment,  guaranty  of,  371,  498. 
Payment  of  part  as  consideration,  232,  242. 
Payment  of  surety  necessary,  345,  346. 
Peculation,  facility  for  increased,  446. 
Pleading  of  grounds  of  forfeiture,  442,  444. 
Price,  last,  608. 
Primary  contract,  455. 
Principal  agent  for  sureties,  117. 
Principal  debtor  may  become  surety,  404. 
Principal  an  infant,  132. 
Principal  an  Insane  person,  132. 
Principal  a  married  woman,  132. 
Principal,  discharge  of,  490. 
Principal,  judgment  against,  506. 
Privity  of  principal  and  surety,  504. 
Promise  to  furnish  future  security,  22. 
Promissory  statements,  481. 
Proposition  to  guarantee,  172,  191. 
Property  as  surety,  251,  263. 
Public  officers,  negligence  of,  465. 


634  INDEX. 

[BEFERENCES  ABE  TO  PAGES.] 

R 

Railroad,  guaranty  by,  14. 
Ratings  of  credit,  539. 
Ratification  by  infant,  112. 
Refusal  to  defend  suit,  531. 
Real  estate  title  bonds,  573,  580. 
Release  by  change  of  duties,  448. 
Release  by  change  of  duties  by  law,  450. 
Release  of  one  surety,  effect  of,  457. 
Release  of  lien  by  public  officer,  489. 
Release  of  surety  on  petition,  611,  613,  619. 
Representations,  480. 
Representations  of  cashier,  433. 
Retaining  a  defaulter,  430. 
Return  of  execution,  546. 
Revocation  by  death,  412,  417. 
Revocation  by  notice  of  death,  419. 
Revocation  of  guaranty,  402. 
Rights  of  corporate  sureties,  611,  613,  619. 
Rights  of  property  as  surety,  251,  263. 
Rights  of  successive  sureties,  332. 

S 
Secondary  contract,  455. 

Special  guaranty,  46,  59,  68,  72. 

Special  letters  of  credit,  400. 

Splitting  cause  of  action,  343. 

Statute  enabling  married  women,  77,  84. 

Statute  of  frauds,  48,  387,  396. 

Statute  of  limitations,  5. 

Statute  of  limitations,  concealment,  436. 

Statement  as  to  bank's  condition,  434. 

Status  of  married  women,  88. 

Strictissime  puris,  doctrine  of,  33,  38,  41,  59,  68,  72. 

Subsequent  guaranty,  25. 

Subrogation,  337,  340,  344,  349,  364. 

Successive  sureties,  332,  337. 

Suit,  refusal  to  defend,  531. 

Suretyship  and  guaranty  compared,  7,  17,  453. 

Sureties  defined,  453. 

Suretyship  defined,  17,  375,  383,  453. 

Surety  for  minor,  392. 

Suretyship  must  be  known  to  creditor,  247,  250. 

Surety  may  plead  principal's  release,  490. 

Sureties  may  complete  building,  512. 


INDEX.  635 


[REFERENCES  ABE  TO  PAGES.] 
T 

Time,  extension  of,  19,  21,  222.,  231. 

Time,  fraud  in  procuring,  233,  240. 

Title  indemnity  bonds,  573. 

Trust  fund,  assets  of  insolvent  estate  are,  370. 

U 

Until  paid,  meaning  of,  491. 
Ultra  vires,  102,  109. 

V 

Vagueness  of  terms,  470. 
Voidable,  contracts  of  infants,  115. 
Volunteers  have  no  subrogation,  342. 

W 

Waiver  of  defense,  444. 
Waiver  of  proof  of  loss,  473. 
Warranties  by  obligee,  480. 
Withdrawal  of  surety,  456. 
Women,  26,  27. 

.Common  law,  77,  84. 


1 


?    'Vv 


LAW  LIBRARY 

UNIVERSITY  O^  C  AT  IFORNIA 
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